AKAM vs LLNW on Insider and Institution holding pattern

Lets look at AKAM and LLNW’s insider net transactions for last 6 months, as these numbers can give us some insight into the firm if management or board is buying (bullish) or selling (bearish) on the company they run. If you really see, this is all it boils down to, if you run a business and if you are buying then I am l also convinced, no matter how much you talk or release in press, as long as management and board buying, I am in.

LLNW has % net sell by officers and board for last 6 months is 10.1% , means management and board sold 10.1% of total outstanding shares in given period. The same number for AKAM is only 1.1%. Inference of these two number shows that LLNW team has less confidence on its stock and bearish on it.

Lets look at institution’s holding pattern in last six months for these two firms, AKAM institution holding declined 7.66% and LLNW’s declined by 18.25%. In general, increase institution’s holding can signal bullish sentiment about the stock because institutions are have many analysts to value stock and many resources available to them, so them buying the stock validate the bullish sentiment. AKAM’s institution holding declined 7.66% and LLNW’s declined by 18.25%, means institutions have off loaded LLNW more than they did AKAM, and assuming they have done thorough research, LLNW may underperform respective to AKAM for next 6 to 8 months.

Please post your comments.

Greece Debt

What & How much:
Greece government has been borrowing money and reached the debt level of 250B Euro, and the growth in GDP (which was approx 225B euro in 2010) should be paying for interest bill on debt, but rather GDP declined (-4.5% in 2010 and -2% in 2009), so of course Greece’s govt is not able to pay its dues, so only two options, either default or some body help with more money. Although european countries are bailing Greece out for some time, but the question is not whether Greece will default or not, it’s rather when.

Why difficult to Recover:
Around 75% of this debt is outside and 25% is inside Greece, and its difficult to recover or not to default when more is allocated internally, Japan’s 95% outside debt would be considered better than Greece’s 75%.

Unemployment rate in Greece has grown to 12.7% in 2010 from 7.7% in 2008. This increase in unemployment points out even sadistic picture of future GDP growth, because decrease in labor input will affect the real GDP growth negatively. Greece’s debt increased to 142% of GDP in 2010 from 99% of GDP in 2008.

PIIGS (Portugal, Ireland, Italy, Greece and Spain) are all weaker european economies and they peg their currencies to Euro, because they peg, they lose control to boost the economy by lowering down the interest as we can do here in USA with Central bank’s monetary policies. Even worse is that, ECB european central bank don’t have to bail Greece out, per Europe’s Masstricht treaty dictate “the Community should not be liable for or assume the committment of central government, regional, local or other public authorities of another member state.”

An additional reason for difficulty to recover is speculators, many pension and hedge fund manager owns the CDSs on these Greece bonds without owning the underlying bond (yes, you can do that) so these private managers have added interest in bringing the Greece’s economy down. This CDS owning issue is being talked about and hopefully soon the regulation will tighten up against owning the underlying before CDS.

Cascading effect of Greece’s default:
No country in this interconnected financial world is completely segregated from other economies (G20), banks in different countries linked with various loans, swaps, and options, so any one default would certainly take cascading effect on their counterparties and further. Take UK for example, British banks have approx 12B GBP direct exposure to Greece and many times more indirect exposure that can result in significantly losses in UK, and that can affect many financial institutions in US that have those banks as counterparties in UK. If Greece’s economy has to go down the toilet, many other economies in PIIGS might sink too, and combining their cascading effect, it can be catastrophic financial disaster.

Akamai Technologies

AKAM (Akamai Technologies Inc.) is a Technology company that is in business of Content Delivery Networks for faster internet data delivery.

1.  Product(s):

Akamai products lines are focus on faster content delivery over the internet, cloud computing and hosting services. It has around 80,000+ servers in 1000+ networks that holds cache for web-based traffic and streaming online video delivery. Some of Akamai’s products are “Web Application Accelerator” , “IP Accelerator”, “Akamai Media Delivery”, “Electronic Software Delivery”, “Dynamic Site Accelerator” and “Advertising Decision Solutions” are among major products. “Security and Protection Solution” and “Site Intelligence” are among other products offered by Akamai. Akamai delivers 15-30% of all internet traffic around the Globe.

Akamai’s top ten clients include Adobe, Apple, Audi, Best Buy, EMC, Hitachi, Home Depot, L’Oreal, Microsoft, MTV Networks. They have 20 offices in USA, approximately 2200 employees out of which 500 in R & D and 1000 in Sales (200 in direct sales).

Product Demand
In my opinion, CDN (Content Delivery Networks) is a growing business with more business done with e-commerce and smart phone users accessing internet and watching/listening audio/video content online. Performance becomes very critical because users become very impatient and frustrated with slow internet sites and move to other competitor’s website, thus loosing business. Akamai’s leading market share in this industry will enable it to make use of internet growth until competitor invent better and cheaper technology for the same.

Akamai has acquired Velocitude recently and this will expand Akamai’s horizon into mobile phone’s data delivery networks. With rapidly growing social media website usage (i.e. facebook, twitter) on mobile and web, users are uploading/downloading pictures and video that require high bandwidth and faster content delivery. Akamai is positioned to take advantage of that with its 80,000 server already in place. So in my opinion, the demand of Akamai’s product or like products will increase and growth will depend on competitor’s product line and efficiency of product.

Expected Life of the Product
Life of Akamai’s product may be short-lived if customer develop the technology in-house or switches to competitor’s product. Although more and more companies are outsourcing their technology work and being more depended on outside third-party vendors to provide off the shelf solutions. Switching of these solution to competitor’s product will not take much time and effort so existing customer can evaporate if competitor’s come with better and cheaper solution.

– External variables that can affect demand of the product
Growth of internet, usage of smart phones and Akamai’s technology innovation will decide the demand of Akamai’s product line. I am confident about the growth of internet and smart phone usage, so Akamai’s technology innovations and update along with pricing would be major player in getting more market share.

Customer’s Product Reviews & Employee’s Satisfaction
Most of online reviews about employees are satisfactory, employees reviews talks about Akamai’s fast paced technology. Technology used is up to date and employees are happy working there. Two cons I have found in the blogs I have read is that, Akamai is hiring aggressively and that is diluting talent along with respective low pay satisfaction among current employees.

– Cost of Products and Competitive products
Akamai’s product have been expensive because of low competition earlier, but recently Limelight and Level 3 has emerged as strong competitors with low prices. As a result of this competition, Akamai’s had to lower down many of its renewed contracts in 2010. In Q1 of 2011 Akamai’s share price was down based because of increasing competition in this market segment.

2. Fundamentals

– Revenue Growth (in % from same quarter of previous year)

  Q1 Q2 Q3 Q4 Annual
2007         48%
2008 35% 28% 22% 16% 24%
2009 12% 6% 5% 12% 9%
2010 14% 20% 23% 20% 19%
2011 15%        

Revenue growth of Akamai seems to be good, all quarters of 2008 grew strongly followed by recession hit of 2009 quarters, but in 2010 Akamai is growing again consistently. Annual growth numbers are also consistent with economic condition in broad market. Overall revenue growth numbers look consistent.

– EPS Growth (in % from same quarter of previous year)

  Q1 Q2 Q3 Q4 Annual
2009          
2010 10% 5% 18% 28% 15%
2011 21%        

A very important point to quantify the management’s efficiency is to study if they are able to convert revenue growth into the income growth (EPS growth). In 2010 quarters only Q4 is where management able to convert 20% growth in revenue to 28% growth in EPS, all other quarters management fall short of that. One reason for this could be that in 2010, many of Akamai’s contracts with clients got renewed at lower prices because of competition in this industry segments.

3. Management & Directors

Akamai was found by scientists at MIT (Massachusetts Institute of  Technology) in 1998. Tom Leighton and Dr. Berners Lee were among founders of Akamai’s business concept. Graduate student Danny Lewin joined Akamai to tackle the problems of Internet Content delivery.

CEO
Paul Sagan is CEO since 1995, president since 1999 to 2010 and received $5.9M in total compensation last year. He is a director of EMC and iRobot. In past, he has served as President of Time Inc. and editor of New Media, and director of Dow Jones & Company, Digitas Inc., and Maven Networks.

Mr. Sagan, trustee of Northwestern University, a graduate of the Medill School of Journalism, co-chairman of the Medill Board of Advisors, a member of MIT Visiting Committee in the Department of Electrical Engineering and Computer Science, a member of the Dean’s council at the Kennedy School of Government at Harvard University.

-Directors

Akamai’s board of directors includes George Conrades, Martin M. Coyne II, Pamela J. Craig, Jill A. Greenthal, Daved Kenny, Pete Kight, Tom Leighton (co-founder & MIT Professor), Geofrey Moore, Frederic V. Salerno and Naomi O. Selighman. All of directors seems to have relevant industry experience and knowledge of relevant technology.

In my opinion, with all above credentials and experience, Akamai’s management and directors has enough experience and knowledge to justify the position they held in the firm.

4. Industry Analysis & Competitors

The global cloud computing market is currently estimated at approximately $37 billion and expected to hit $121 billion by 2015 at a growth rate of approximately 26%. Consequently, we consider it a significant platform for the CDN market that is likely to cross $5 billion by the end of 2013. 

– Major Competitors and market share
Akamai’s has 60% of market share followed by its competitors Limelight, Level 3 and now AT&T. Akamai delivers 15 to 30% of all internet global traffic. Akamai’s competitive advantage is its position in the market where it has 80,000+ CDN servers in 1000+ networks already in place, thus Akamai has been charging more from customers resulted in higher profit margin in past. As less expensive similar services from Limelight and Level3 are reducing market share of Akamai, it has started lowering down the prices of its products. Another threat is from CDNetworks that is developing a new technology for faster content delivery into media segment.

5. Technical Analysis


(source: finance.yahoo.com)

Akamai’s recent price is more than its 20 day moving average, but less than 50 and 100 day moving average. It has been in down movement since Feb 11, when price went down its 100 day moving average and lost the momentum. By looking at 50 & 100 days we can conclude that the stock is in down momentum and for 20 day moving average being lower than current stock price, we can infer that stock price is on up momentum for at least a short run.

6. Insider & Institutional Holding

Insider holds 3.31% and Institutional clients holds 83.7% (source: Yahoo Finance) of Akamai’s equity stock. Institutional clients holding seems to be little high results in hight volatility because institutional client usually buy/sell in bulk that affect prices quickly. Institutional client holding between 40 to 55% is optimal to validate the company as good enough to buy but too much of institution client holding would create volatility and risk as Institutional client would be more efficient in getting the information and react on that information before individual investors.

7. Conclusion

Akamai is a buy in my opinion (on basis of five point scale of Strong Sell, sell, hold, buy, Strong buy).  Positive points are 60% market share, leading position in the industry, track record of generating profit, achieved 1B in revenue goal, 1.24B in cash and marketable securities compared to 1.1B last year, internet and mobile data growth, client partnerships with major players in entertainment & media industry and good management. Negative points are competitors like Limelight and Level 3 are providing similar services with cheaper prices, CDNetworks coming with new technology for media content delivery, low barrier of entry to competitors.

Please post your comments or suggestions.

Disclaimer: Writer holds 200 shares of AKAM.

CFA for IT Professionals

Information Technology (IT) Professionals with Engineering background are increasingly fascinated by Financial career and to switch the career path they inclined toward CFA (Chartered Financial Analyst). CFA is a competitive exam that has three levels to pass and requires relevant work experience. It is a self-study program in which you put in approximately 250 hours of study for each level (depends on your prior experience with Financial background).

CFA Curriculum:
The curriculum of CFA covers almost all the financial aspects of investments details and how they work along with their role in the industry. Below are the broad topic areas covered by CFA Curriculum (including all three levels)

  • Ethical and Professional Standards
  • Quantitative Methods (such as the time value of money, and statistical inference)
  • Economics
  • Financial Reporting and Analysis
  • Corporate Finance
  • Analysis of Investments (stocks, bonds, derivatives, venture capital, real estate, etc.)
  • Portfolio Management and Analysis (asset allocation, portfolio risk, performance measurement, etc.)

Major focus of this curriculum is to equip you with all the knowledge that is needed to build a portfolio of securities by research and analysis followed by portfolio management. The curriculum also gives you knowledge of Risk Management and diversification. CFA institute provides books upon registering for the exam (registration fees also covers for books), Stalla or Schweser can also be used as study material but they are very concise. If you have IT background it’s better to go through CFA institute’s books because they are easy to understand and very thorough on the subject.

Why IT Professionals:
I have been an IT Professional for few years now and before I started my journey toward this program I had almost zero knowledge and experience with Finance. Only after studing for level I, I felt that I can talk about finance and could understand most of the terminology used by financial planner or advisors. IT professionals mostly comes from engineering background with above average analytical & math skills that help them understand Quant and Derivative section of the curriculum, but they struggle with Financial Statements and may be in reading through Ethics & Codes.

Finance Career for IT Professionals:
IT Professionals, in my opinion has two career stream after finishing this program, one is to go into Quant Developer area and second is to switch career path to Research Analyst followed by Portfolio Manager. first, Quant Developer, where they can leverage their IT/Math experience along with concepts they have learnt in CFA program and work with Traders and Portfolio managers to run strategy simulations, and algorithms. This career path has good potential to earn more than IT developers and in long-term you will always stay in mostly the same role with Senior in front of your title like Sr. Quantitative Developer. The second option, to quit IT work entirely and start over with Research Analyst, this would use your some IT skills (i.e. Excel, Macros, VBA, MS Office) but you would mostly be analysing companies by tearing apart firm’s financial figures, attending conference calls, meeting with management and then writing a report. This path would lead of Sr Research Analyst or Sr Securities Analyst in few years and probably to Portfolio Manager after a decade or so depends on the capability of the candidate.

This is my knowledge about finance career for IT professionals, if you have more insight or if you are the one who switched your career please share your views. I bet lot of IT folks out there looking for guidance in this field, so if you know more please share.

Follow

Get every new post delivered to your Inbox.