Akamai 4Q16 Earnings Call Notes

Frank Thomson Leighton

I think there’s going to be changes with net neutrality

“With net neutrality, I think there’s going to be changes there with the new administration. I think a lot of rules that existed before may go away, and I don’t think that really makes much difference to our business. We weren’t regulated in the first place, and I don’t see anything coming there that would be bad in any way for Akamai.”

Media business is very healthy

“Even years there are more events, but as we’ve talked about in the past, any given event gives us some revenue, but it’s not really swinging the needle. Now sometimes with Olympics and so forth new devices will come out and someday like VR, for example, we’ve started to do some of that, and that can drive traffic levels on a more sustained basis afterwards. But I wouldn’t read a lot into that, and I think the Media business is very healthy. We’re seeing very strong growth in OTT, very strong growth in our gaming customers and just Modulo the very big, the six platform companies that are doing more on their own, the Media business has been very good.”

OTT growing at a solid pace, but hasn’t exploded yet

” I’d say OTT is growing at a very solid pace. It hasn’t exploded. At times people think that might happen, but that’s not taken place. I think there’s a lot of new offers out there – continue to be new offers. People are going to try lots of different kinds of things, and some will have more success than others in the marketplace. It is a very hard thing to do. Just even the delivery of the videos at high levels of quality is very hard, and that’s where we really excel.”

James Benson

OTT and VR are catalysts to drive growth in media business

“And I’d say that has been the bigger catalyst driving growth in the Media business that those – the gaming and the software download area tends to be much more spiky. And you’ll have surges at times and then it won’t at other times. So I think the catalyst for growth in the Media business is going to be OTT. I don’t think you’re going to see the catalyst. You may see even a catalyst, as Tom mentioned, as you see more VR and things like that in the gaming space that require performance to work well, but I think that between things like that and OTT, that’s going to be the cause of kind of re-acceleration in the Media business.”

Akamai 4Q15 Earnings Call Notes

Frank Thomson Leighton – Chief Executive Officer & Director

It’s hard to replicate our ability to deliver online media

“More importantly, as more video moves online, I believe that there is the opportunity for substantial future growth in our media business, even in the top few accounts where DIY is currently a factor. When performance matters, even the biggest media companies turn to Akamai. That’s because it is very hard to replicate our ability to deliver online media with world-class quality, scale and security at an affordable price point.”

Edge server network is a competitive advantage

“Our many advantages over alternative solutions include our unique approach of streaming content through a global network of 200,000 edge servers located close to end users, which allows us to bypass congested middle mile peering points, resulting in a more reliable viewing experience for end users.”

Think we compete favorably against DIY

“I think there’s only a very small handful of customers that can even really think about doing it. We’ve been competing against DIY now for 15 years and through that time, there’s only a handful that have gone there. Generally, we compete successfully and in my opinion, probably doesn’t even make sense for them to be doing it. And ultimately I think that they discover that as Akamai continues to improve its capabilities that we’ll do a better job at a lower price point. So I don’t think this is something that goes broader than the few customers who do it today, and even there, I’m optimistic about our future in those accounts.”

OTT will be dominated by a relatively small number of large entities

“Last year we did purchase some CapEx in advance of what we thought would be a real strong influx of OTT. That didn’t take place the way we thought. I think over-the-top will be dominated by a relatively small number of major entities; broadcasters, carriers, media giants. I think we have great relationships with pretty much all of those folks and we’re in a very good position to benefit as OTT increases.”

Have a partnership with Microsoft for Azure

“the partnership with Microsoft has several components. I think you’re referring to the part with Azure, where if you have applications running on Azure, you’ll be able to check the box, and deploy Akamai whole site delivery for whatever you’re doing with Azure. And I think that’s a great step forward for us. Microsoft will also be reselling our services.”

Harder to do DIY outside of the US

“We don’t see really do it yourself outside the U.S. It’s really only in literally a handful of giant U.S. media companies. So it’s really not an issue there. In fact, it probably gets even harder outside the U.S. to try to attempt that.”

OTT traffic surge didn’t take place

“We and a lot of other folks had very good reason to believe that there was going to be the good possibility of a large influx in OTT traffic. That did not take place.”

James Benson – Chief Financial Officer & Executive Vice President

Akamai 3Q15 Earnings Call Notes

Akamai Technologies (AKAM) Frank Thomson Leighton on Q3 2015 Results

Slowing traffic growth in some of our largest accounts but rest of media business very healthy

“we are projecting some moderation in the growth of our U.S. media business, primarily due to slower traffic growth in a few of our largest accounts…To be clear, the rest of our global media business is very healthy. Our overall media traffic is still projected to grow at a substantial pace, and I am very optimistic about the future growth of our media business.”

We believe the slowing in traffic is overall slowing at these accounts, not do it yourself

“we are seeing a slowdown in those accounts off of very strong Q4 of last year, and it is magnified by the fact they do serve some of their own traffic. But we believe kind of the bigger slowdown in traffic here is that traffic overall is slowing, not so much an acceleration and kind of do-it-yourself.”

Bots have become a significant issue for customers

“Bot manager is our newest security service and is now in beta with 18 customers. Bots are automated software agents, and they have become a significant issue for our customers. On a typical day, Akamai sees over 10 billion requests from over 60 million bots. Some bots, such as search engine bots, are helpful, but many are harmful. Malicious bots can steal intellectual property and personal information, scrape prices, and consume significant bandwidth and server resources. Some of our customers have been surprised to learn that over half of their traffic is from bots.”

DIY doesn’t make sense for anyone except the giant media companies

“It’s not something that I think even makes any sense at all for somebody who is not a giant media company, just – it’s not going to be any kind of quality you’d want to have and it doesn’t even make sense financially, I think.”

It’s tough to say why traffic is slowing for our customers

“I mean, that’s tough to tell. I mean, this is the nature of our business that we can’t control how many people are doing a download, how many people are doing various things. So that’s really an end user thing. So why it’s slowing for our customers is difficult for us to assess.”

These are big, big customers

“these top three accounts in our media business represent a reasonably large percentage because these are big, big, big media companies. So the biggest share of the revenue deceleration and actually these three accounts are declining year-on-year.”

Growth outside these customers is strong

“it’s fair to say that growth outside of these three customers in the media is doing very well. Our international growth is strong in the media business, and is strong in other segments of our U.S. market as well.”

Akamai 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

22% revenue growth aint bad

“As Tom outlined, Q3 revenue came in above the high end of our guidance range at $498 million, up 26% year-over-year and up 5% or $22 million sequentially. This result marks our first quarter of year-over-year growth of over $100 million and represents our highest Q2 to Q3 sequential growth ever.”

Lots of growth over the last 15 years

“15 years ago, on October 29, 1999, Akamai began trading as a public company. At the time of our IPO, we had 350 employees, 50 network partners and 1,400 servers in 20 countries, delivering peak traffic of 1 gigabit per second for a total of 100 customers. In the fourth quarter of 1999, we generated less than $3 million of revenue and a substantial net loss.

Today, Akamai has nearly 5,000 employees, 1,300 network partners and over 150,000 servers in 95 countries, supporting peak traffic of more than 26 terabits per second for 5,000 customers worldwide.”

The internet has grown a lot too

“Akamai has come a long way over the past 15 years, and so has the Internet. The global population of Internet users has multiplied more than tenfold from 280 million, which was less than 5% of the world population in 1999, to nearly 3 billion people today. And the number of websites has grown from about 3 million to over 1 billion. The annual e-commerce volume has grown from less than $100 billion in 1999 to a projected $1.5 trillion this year. ‘

Accelerating growth of the internet places stress on the infrastructure

“The accelerating growth of online usage and cloud services is placing significant stress on an Internet infrastructure that was not designed to accommodate the rapidly growing demands for scale, speed, reliability and security. As a result, congestion is increasing at major peering points, which degrades video quality and slows down Web applications. Performance is also hampered by the increasing complexity of Web applications. In the past 2 years, the typical size of a Web page has more than doubled. The number of third-party domains on a typical page is up 56%, and the average amount of JavaScript on a page has grown by 40%. The net result is that the average time to download a Web page from an origin has increased by more than 60% in just 2 years.”

Attacks generate hudreds of gigabits per second of traffic

“We are now seeing attacks with many tens of gigabits per second of traffic on a daily basis, and some attacks generate hundreds of gigabits per second of traffic, far exceeding what the vast majority of websites can handle using traditional defenses.’

Some people try to do it themselves, but its actually pretty complicated

“Delivering high-quality video at scale is much more complicated than most people realize. And despite our many competitors and the do-it-yourself efforts by large content owners and service providers, Akamai is differentiated by our success in streaming high-quality video at scale through our unique platform of servers in thousands of locations close to end users.”

Scale enabled by telco partners

“Our tremendous scale is achieved in part through close cooperation with the many networks that comprise the Internet. We locate our servers inside nearly 1,300 networks, and we are forming much deeper relationships with the world’s largest carriers. Recently, we were very pleased to announce new strategic partnerships with SingTel and China Telecom, which we expect will further expand our capabilities and capacity in the Asia Pacific region for both local and global customers.”

DIY is our greatest competitor

“DIY is our biggest competitor. The very biggest media companies, pretty much all of them have had a DIY effort, and I think that’s going to continue to be the case in the future. Our job is to invest in research and development and figure out how to do it better at greater scale and at lower cost.”

There’s a lot of competitors out there

“I think, the CDN competitive climate has been challenging for the last 15 years and will continue to be so. There’s a lot of competitors, and we work very hard to do a better job of it, be more reliable, higher scale, better performance, better video quality and to be affordable for our customers. And I think we’ve had a lot of success. If there’s been a change per se, I would say that our success in working with the major carriers has been a helpful change. Many of the carriers were competing with Akamai, and you’re seeing in the last year to 2 years, several of the big carriers now converting to the Akamai platform, and working together with us. And I think, that’s been a fundamental shift that’s been helpful to us, but there’s a lot of competitors out there.”

Revenue is driven by traffic

“again, revenue is the product of traffic and price when it comes to video and media. And traffic’s growing, obviously, at a substantial rate.’

You can imagine a world with 25,000 terabits a second

“you could imagine a future world with 2.5 billion people that go home at night, in prime time, watch a show…if you have that world with 2.5 billion people at 10 megabits a second, and you multiply that, that’s 25,000 terabits a second. Now that’s a big number. Just to put it in context, Akamai is now delivering at north of 25 terabits a second, and we’re a pretty big portion of the Internet. And so you look at 25-plus today, you can imagine a future world with 25,000”