I had bought AKAM the day before, and added more AKAM on the 4% pullback early, which I noted mid-day.
These seemed like a non event to me, and just a continuation of an existing agreement or small expansion. When financial terms of a deal are not disclosed, always makes me wonder. It is in the best interest of Microsoft and any large content provider for their to be competition in the space, so for all we know they are trying to keep Limelight in the game. But it appears Limelight's growth at all costs (i.e. price war) that has been speculated upon, cost them. Much like Intel vs AMD, it's hard for the smaller upstart to outlast the deep pockets of the established player. In this case AKAM = Intel, and Limelight = AMD. While AMD has had its spurts over the years, the easy (and more stable) play has been Intel. Hence my chips will continue to go to AKAM and with lowered expectations, hopefully after the next earnings/guidance we can begin our journey back to normalcy with Akamai.
I saw a late day article via AP with a Citi analyst that generally agreed with my line of thinking on the events yesterday:
"Citi analyst John Reilly Walsh said Thursday that investors in Akamai Technologies Inc. overreacted to news that competitor Limelight Networks Inc. will provide media streaming and content delivery services for Microsoft's Internet properties and Xbox Live."
However, Reilly Walsh points out that this deal isn't Limelight's first with the software giant. Microsoft has been a customer of both companies, using Akamai mainly for software downloads and Limelight for Xbox Live and MSNBC services.
"We view this announcement today as little more than Microsoft extending an existing relationship with a technology provider with whom they've had a 5-year relationship, not Akamai losing a customer," Reilly Walsh said in a note to clients.
Meanwhile, Reilly Walsh says it's not as though Akamai is "sitting on its hands in the gaming market." Though Limelight was chosen over Akamai because the latter couldn't accommodate a specific technical requirement of the original Xbox, Akamai is the content-delivery-network (CDN) for digital download services of both the Sony PS3 and the Nintendo Wii consoles."The 5 percent drop in shares this morning on what we view as 'non-news' is an overreaction," Reilly Walsh said. He believes the company's presentation at Citi's technology conference Sept. 6 could be a near-term catalyst for the stock, which he thinks is 'deeply oversold."
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While AKAM could be dead money in the near term, once the technical picture improves in the stock, this will be a position to build going into October's earnings.
AKAM is now up to 1.5% of the fund's holding; LLNW 0.2%
No personal position
Long AKAM, LLNW in fund
