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Will Akamai’s Large Clients Build Their Own Networks?

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Media delivery solutions fell 2% in 4Q15

Revenues for Akamai Technologies’ (AKAM) Media Delivery Solutions segment fell 2% YoY (year-over-year) to $247 million in 4Q15. However, it rose 7% YoY for full year 2015. When adjusted for foreign exchange fluctuations, revenues in this segment rose 1% YoY in 4Q15 and 10% YoY in calendar 2015.

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Akamai wary of falling revenues

In its 3Q15 earnings call, Akamai stated that it expects revenues generated from its media content delivery business to fall in the near future. Heavyweights such as Apple (AAPL) have started diverting traffic to their own content delivery networks (or CDN).

Analysts expect big companies to divert all traffic to their internal networks in the long run. Internet companies such as Netflix (NFLX) and Alphabet (GOOG) already have sustainable networks. Amazon (AMZN) has entered the CDN market and is now offering services to other companies, thereby becoming Akamai’s competitor in this space.

As the resources required to build and establish internal networks are huge, Akamai’s smaller clients will continue to use its services in the long term. Even though Akamai might lose revenues from its biggest customers in this segment, it’s not at risk of losing a major portion of revenues generated primarily from its smaller clients.

Apple accounts for 15.8% of the Technology Select Sector SPDR ETF (XLK).

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