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Akamai (NASDAQ:AKAM) owns the world’s largest and most established content delivery network (CDN) with over 4,000 locations globally. The business is currently expanded its business to focus on the trillion-dollar cybersecurity market and the growing cloud computing business. So far results have been promising with its “Compute” business growing revenue by a blistering 72% year over year. The company still has a long way to go as it is facing revenue declines in its core business. But in this post, I’m going to break down its evolving business model, financials, and valuation, let’s dive in.
Data by YCharts
Evolving Business Model
Akamai’s mission is to “power and protect life online”. The company has its roots as the world’s largest and oldest content delivery network [CDN]. A CDN basically uses a footprint of global data centers to store a cached version of a website in order to increase website performance/speed and security. For example, let’s say you are in Los Angeles, California and you are accessing a website that is hosted in Sydney, Australia. Rather than your “HTTP GET Request” for the webpage going to the server in Sydney, it can be derived from the LA data center close to you, if the website provider uses a CDN.
The CDN is a great business and competes with companies such as Cloudflare (NET), Fastly (FSLY), and Amazon’s CloudFront by AWS. However, Akamai believes it can leverage its vast “edge network” as a platform for edge computing, Video Streaming, fast application delivery and even cybersecurity.
Akamai Edge Platform (Analyst Day Presentation)
Akamai’s three main pillars now include Compute, Security, and Delivery. Cybersecurity is huge growth market, given 37% of global organizations suffered some type of ransomware attack in 2021, according to a Verizon Data Breach Investigations Report, cited by Akamai. This attack usually involves a hacker hijacking sensitive customer information and then planning to release it on the dark web and in the press unless a hefty ransom is paid. The average demand is $2.2 million (usually asked for in Bitcoin). This is one of the biggest fears organizations have, and as there is a direct cost of inaction it can easily be quantified to urge the buying of a solution.
Ransomware attack (Analyst Day Presentation)
Akamai’s cybersecurity platform consists of a multitude of solutions. Guardicore enables the “micro-segmentation” of individual users. This basically means users or employees on a corporate network are only given access to the applications they need and thus prevents “lateral movement” via a hacker. Then we have a Secure Web Gateway [SWG] which helps to stop DDoS attacks. In addition, multi-factor authentication is one of the easiest ways to prevent breaches.
Cybersecurity Akamai (Analyst Day Presentation)
Damage from cyberattacks will equate to ~$10.5 trillion by 2025, up an eye-watering 300% from 2015. Therefore, a study by McKinsey indicates the $150 billion organizations spent on cybersecurity solutions in 2021 is insufficient, and thus the market will likely grow to between $1.5 trillion and $2 trillion.
Stable Financials
Akamai reported strong financial results for the third quarter of 2022. Revenue …….