Investopedia: Can Akamai Offer More Than Relief?

Akamai (Nasdaq:AKAM) didn't make the internet, but the company's services do help it work better for companies and users. Unfortunately, Akamai is sandwiched between an increasingly commoditized legacy business, and a value-added service model that holds promise but a lot of uncertainty. Although its possible to construct a large and lucrative revenue scenario for Akamai, investors may want to wait for this relief rally to peter out before making a major commitment. 

A Mixed Third Quarter  
Revenue rose 11% in Akamai's third quarter, split between 4% growth in the legacy volume-based service business, and 17% growth in value-added services. Among the company's addressable verticals, commerce was strong (up 23% from last year), and enterprise grew from a smaller base (up 30%), while media and entertainment growth was much more modest at 5%. While Akamai's last three quarters saw management talk down the numbers, this was the first "meet and maintain" in a while.

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Investopedia: Beware Of The Undertow At Riverbed

Shareholders in networking equipment stocks, like Riverbed Technology (Nasdaq: RVBD), F5 Networks (Nasdaq: FFIV), Juniper Networks (Nasdaq: JNPR) and Blue Coat Systems (Nasdaq: BCSI), now have some idea what it's like to be the chew-toy of a Great Dane puppy. The wild swings of the past two years, both in the businesses and the stocks, have left them shaken, chewed up and perhaps even covered with slobber. While the third quarter report out of Riverbed may look like good news, and indeed there are certainly some positives to this story, investors should be a little cautious before fully buying into this name. 

A Solid Third Quarter  
Riverbed hasn't really disappointed in a while, but investors have been put off in prior quarters by shortfalls, relative to whisper numbers and guidance that wasn't as ebullient as valuation would seem to demand. Nevertheless, Riverbed delivered 28% annual revenue growth this quarter, with 12% growth on a sequential basis.

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Investopedia: Level 3 Getting Bigger; Better Remains To Be Seen

Investors who have supported Level 3 (Nasdaq:LVLT) through thick and thin have seen at least half of the investment thesis play out. Demand for bandwidth has indeed exploded, and broadband connectivity is everywhere. On the other hand, the profitability side of the thesis has just never worked out, and it has been a perennial question as to whether Level 3 will ever reap profits from its impressive fiber network. 

Level 3 is taking another big step in trying to drive profitability and free cash flow out of its assets, announcing on Monday that it would acquire rival Global Crossing (Nasdaq:GLBC) in a $3 billion stock deal. Assuming that the deal goes through, Level 3 should be able to drive some meaningful synergies, but it is an open question as to whether even this combined company will produce compelling returns on its huge asset base.


Terms of the Deal
Level 3 will be paying 16 of its own shares for every share of Global Crossing, a deal that valued Global Crossing at just a bit over $23 based on Friday's close. Level 3 will also be taking on $1.1 billion in Global Crossing debt, bringing the total value of the deal to $3 billion.

At those prices, Level 3 is paying almost eight-times trailing EBITDA, and valuing Global Crossing at about 1.2-times on an EV/revenue basis. So even though Level 3 is paying a 55% premium to acquire Global Crossing, it is still valuing its target at a lower multiple that it itself trades for currently.

Although not part of the deal itself per se, Level 3 has also announced a shareholder rights plan in conjunction with the deal. Now, this is not a run-of-the-mill rights plan; the sort that companies will issue in the name of "protecting" shareholders while actually only protecting their cushy seats. This plan is about limiting ownership stakes in Level 3 that could imperil the company's considerable tax loss carryforwards or net operating losses (NOL). (For related reading, check out A Sticky Fight Between Comcast And Level 3 Over The Web.)


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