Akamai shares rise on partnership with AT&T

December 6, 2012

LOS ANGELES (AP) -- Shares of Akamai Technologies Inc., a company that helps websites deliver online content, rose sharply Thursday after it announced it would provide its services to AT&T Inc. customers, taking away the threat that AT&T would expand its competing service.

THE SPARK: Akamai and AT&T announced a strategic alliance to distribute content delivery network (CDN) solutions to companies. The effort will initially focus on North America, with plans to expand globally within 12 months.

Under the deal, Akamai said it would deploy CDN servers at the edge of AT&T's Internet protocol network and in AT&T facilities throughout the U.S. By deploying Akamai infrastructure within AT&T's network, end customers are expected to benefit from more efficient content routing and better delivery of digital content such as Web videos and applications.

AT&T will transfer its existing CDN operations, customers and service to the Akamai platform in 2013.

THE BIG PICTURE: Akamai helps websites deliver video and other content to viewers. But its services come under threat when its customers decide to provide such services on their own. Akamai shares were hurt earlier this year when Netflix Inc. announced it would expand its own content delivery network and eventually replace Akamai as a supplier.

THE ANALYSIS: Janney analyst Richard Fetyko said that the partnership removes a possible threat.

"We have known telco's launching their own CDN could be a threat," he wrote in a research note Thursday. "This announcement shows that risk has been alleviated."

Fetyko said that Akamai would not incur any immediate increases in capital expenditures and the partnership is not expected to have a material impact on fiscal 2013 earnings.

SHARE ACTION: Akamai shares rose $3.46, or 9.8 percent, to $38.96 in afternoon trading. Shares are near the top of their 52-week range between $25.90 and $40.32.