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Why Akamai’s Media Delivery Business Continues to Shrink

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Akamai wary of falling revenue

In its 3Q15 earnings call, Akamai Technologies (AKAM) stated that it expected revenue 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 the media content delivery space.

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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 may lose revenues from its biggest customers in this segment, it’s not at risk of losing the majority of its revenue, which mostly comes from its smaller clients.

Media delivery solutions fell 4% in 1Q16

Revenue for Akamai’s Media Delivery Solutions segment fell 1% YoY (year-over-year) to $206 million in 1Q16. Revenue in the segment fell 2% YoY to $247 million in 4Q15 as well. However, revenue rose 7% YoY in 2015.

Akamai’s peer Apple makes up 15.8% of the Technology Select Sector SPDR ETF (XLK).

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