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Piper Sandler favors Akamai (AKAM) and Cloudflare (NET) as new teen survey highlights CDN sustainability

October 7, 2020 9:29 AM EDT
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James Fish, a senior analyst at Piper Sandler, believes that Akamai (NASDAQ: AKAM) and Cloudfare (NYSE: NET) - both rated as “Overweight” - are well-positioned to benefit from potentially the strongest e-commerce quarter in the history of content delivery networks (CDNs).

The latest semi-annual teen survey conducted by Piper Sandler shows that teens are spending less time watching the cable TV while streaming is gaining a bigger share.

“While "DIY" CDN streamers like YouTube and Netflix continue to dominate, third-party CDN streamers are helping to create a "rising tide" for Media CDNs. F5 Networks (via NGINX) and Arista are infrastructure vendors that should benefit from greater streaming. Additionally, the increasing time, direct downloads, and new console intent within gaming, are a positive for gaming CDNs like AKAM. Finally, teens' e-commerce spending remains above average, with top teens' websites favoring Akamai, Fastly, Amazon, and Cloudflare,” writes Fish in a note.

NetScout (NASDAQ: NTCT) and Juniper (NASDAQ: JNPR), rated as “Underweight” and “Neutral” respectively, are likely to face stronger headwinds as teens spend less time watching cable TV.

“Cable TV lost another 2.5% Y/Y viewing share to OTT, declining to only ~9% of teens' daily video consumption. Those having cut cable or are intending to do so, increased to 42% from 41% in the year-ago period.

OTT is gaining at the expense of cable TV with teens, which favors CDNs as the underlying delivery providers. Streamers that utilize their own CDNs (ex: Netflix) had ~65% share vs. last survey's 64%, while streamers that utilize our CDN coverage had share that was relatively unchanged. The overall "OTT pie" is growing and broad-based, which is a positive dynamic for third-party CDNs like Akamai & Fastly. F5 Networks (via NGINX) has exposure to some of the streaming services' host environments, while Arista Networks is the primary switching vendor used by many of these CDNs”.

In addition to streaming, the survey shows that teens spend more time playing games. This trend, again, favors AKAM.

“Teens are spending ~10 days per month gaming, and 63% of teens expect to buy one of the new consoles over the next two years (+4% vs. last survey). While these trends are positive for CDNs, the most important takeaway is the increase in direct downloads (56% vs 50% LY). 49% of teens are downloading at least 75% of the games they play directly vs. 30% three-years ago. Now, 26% of teens download all of their games vs. 14% in 2H17,” Fish notes.

As for the website and e-commerce, Akamai (36%), Fastly (32%), and Amazon (23%) rank as top websites being bought from, while Fastly (>75%) and Cloudflare (>60%) recorded the largest increases in the overall traffic pie.



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