In many ways, Akamai Technologies (NASDAQ: AKAM) epitomizes the Internet
stock craze.
The Web site performance-enhancing leader initially offered at 100 in
November 1999, shot up to the ethereal 350 around the turn of the millennium, and
rode the NASDAQ crash back to earth at 100 as of this writing. Because its rise
was not all hot air and its fall had more to do with investor flipping than the
stock's merit, I'm buying. Akamai's another post-flipper with solid technology
and a bright future.
One of the dozens of successful spinoffs from MIT's prestigious Laboratory of
Computer Science, Akamai plays off the Internet's overloaded bandwidth by
providing content-delivery technologies that give customers measurable
performance boosts for their Web sites.
The company's content-delivery algorithms substantially speed up rich and
streaming Web experiences. Its FreeFlow technology is proven to improve Web
download speed as much as six times over conventional server technologies. Its
streaming technology allows audio and video downloads that approach broadcast
speeds. And its network of content-caching servers can seamlessly compensate for
bandwidth bottlenecks elsewhere on the Net.
About.com, LookSmart, Ticketmaster, and many others use Akamai's
performance-enhancing technologies to speed up their Web sites. Expect that
client list to grow quickly as more companies discover the advantages of quicker
transactions and faster-loading content.
Indeed, Akamai has only just begun to gather clients for its services. Some
analyst reports say, if you don't grab your customers within eight seconds of
entry into your site, they click on. According to this theory, slow-loading sites
lose millions of customers per year. A six-fold speed increase can almost
eliminate lost customers and result in huge sales gains over the long term. Given
the return on investment for this technology and the piles of cash burning holes
in dot-coms' pockets, I expect Akamia's sales to skyrocket.
Analysts give Akamai either "buy" or "strong buy" ratings based on its growth
potential and the present value of its stock. I think these projections are right
on target and I expect the stock to be trading in the 150 range within six
months.
One worry about Akamai is that, as Internet bandwidth improves, the need for
the technology will dwindle. A couple of considerations invalidate this worry.
First, even if bandwidth allows quicker download speeds without Akamai's
technology, users still will appreciate a performance boost to make them even
faster. Put another way, there's no limit on the value of speedier Web
experiences. Second, by the time Internet bottlenecks are cleared up, most large
Web sites will already take advantage of Akamai's services. Growth will naturally
slow down as Akamai reaches market saturation, but that is a long way off.
A second, more general worry relates to the tenuous condition of Internet
stocks. Akamai was not the only company to take the NASDAQ crash on the chin.
Most Internet stocks have fared poorly in what many analysts say is the
correction they've been predicting for two years.
The recent NASDAQ crash has some of these investors leery of a pure dot-com
play. Is this skepticism warranted? What day traders want to know is, when do
Internet stocks hit rock bottom?
My view is that there will not be just one correction, but several. This may
be the most devastating one ever. But it is the third major Internet stock
correction in three years. Each time, Internet stocks came back strong on
continued optimism about the Internet economy.
I predict this will happen again (it may have already happened by the time
this article hits the stands). And there will be several more Internet stock
corrections in the future. The trick is to sell highly valued Internet stocks
before the corrections and buy them back afterward. In lieu of this impossible
task, hang tough through the corrections and take a longer-term view of the
market.
This may run counter to the day traders' modus operandi, but it is a
cornerstone of sound investment strategy, preached since before the crash of
1929.
