Thursday morning, December 6, Akamai announced an agreement with AT&T to be the exclusive provider of CDN and cloud services for the carrier. Akamai will deploy servers at the edge of AT&T’s IP network to allow its customers to benefit from more efficient content routing and delivery of digital content, video, and applications. All of AT&T’s existing CDN operations and customers in the United States will be migrated to Akamai’s network in 2013 with plans to expand globally in 2014. With the release of Aura Network Solutions and the acquisition of Verivue, we believe that Akamai is well positioned to penetrate the carrier market with its licensed and managed CDN product.
This announcement represents a milestone as it validates Akamai’s ability to penetrate the carrier market and the value of Akamai’s network for carriers, in our view. Although we expect that it will take time for Akamai to fully develop this partnership with AT&T (T $33.75; Market Perform), we believe that the opportunity can be meaningful to Akamai’s revenue growth in 2013 and beyond. We believe the valuation of Akamai’s shares at 9.3 times our estimate of 2013 EBITDA is attractive given our belief that Akamai will be a primary beneficiary of the secular growth in data‐usage trends fueled by the proliferation
of more robust mobile devices, demand for streaming HD video, the move to cloud‐based ecosystems, and greater integration Internet infrastructure constituents. In addition, investments in new products and geographical expansion are likely to bolster growth in 2013, in our view. Accordingly, we reiterate our Outperform rating.
Agreement highlights value of Aura Network Solutions. Earlier this year, Akamai released Aura Network Solutions, a product geared toward network operators that allows them to use Akamai’s CDN in either a licensed or managed model and relieves
operators of the complexities of building their own CDN and interconnecting it across different networks. This is noteworthy for Akamai as carriers have traditionally been viewed as a competitive threat to the independent CDN providers. Although we believe that it will take a couple of years for this opportunity to develop, the exclusive partnership with AT&T to resell and license CDN services rather than deploying its own, is a milestone for the carrier‐targeted product. We believe the partnership highlights the fact that Akamai can provide CDN services more efficiently than the carriers. By embedding Akamai’s network into AT&T’s IP network, the carrier can better address increasing traffic associated with mobile devices, video, and cloud services.