S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology STOCK ANALYSIS October 25, 2010 Group 3 Jeremy Jackson Matthew Hanley Courtney Murchison Charlie Roch Tarah Shinpaugh Haley Thompson 1 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology Theme Akamai Technologies is one of the world’s leading internet services companies. With over 72,000 servers in seventy different countries, Akamai is known for its marketleading, cloud-based services for optimizing Web and mobile content and applications, online HD video and secure e-commerce. Founded in 1998, Akamai has been recognized in the 2010 Businessweek Worldwide Technology 100, Forbes 2009 List of “25 FastestGrowing Technology companies in America”, Business 2.0 as one of the “100 FastestGrowing Tech Companies of 2007” and number two in the Stock Returns category during 2006. (Akamai) Akamai has continued to increase revenues year over year earning $859.8 million in 2009 compared to Limelight –one of its closest competitors- who earned revenues of $131.7. Akamai has been able to prosper in this highly competitive field through innovation and rapid deployment of services to meet consumer demands for rich online content at affordable rates. One portion of the firm’s growth in recent years has come from acquisition of competition. Netli and Velocitude are recent purchases and both have enhanced technological capabilities and expanded the consumer base. (Akamai) Although Akamai provides its services on the global market, its primary customers are in the United States. Major U.S. customers include: Apple Inc., Hitachi, NASDAQ, and the US Department of Defense. Akamai helps its customers maximize the value of their respective brands by helping to bring an end to “World Wide Wait” for its client’s web presence. (Akamai) The purpose of this report is to analyze every aspect of Akamai Technologies and provide a reasonable analysis of why potential prospectors should invest in this company. 2 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology Business Analysis: Company Profile Akamai Technologies, Inc. was founded in 1998 and is headquartered in Cambridge, Massachusetts. Akamai Technologies is in the technology sector, specifically in the internet industry by offering an accelerated course to digital delivery. The company's technology enables corporations and government agencies to deliver content and applications, such as ads, business transaction tools, streaming video, and Web sites over the Internet. It also offers the EdgeControl suite of tools that supply network data feeds and Web site analytics to customers. By using a network of servers distributed across the globe, Akamai analyzes and manages Internet traffic by transmitting its customer’s content from the server geographically closest to the end user. Akamai has about twenty global offices, but most sales are made in the US. Akamai Technologies, Inc. provides services for accelerating and improving the delivery of content and applications over the Internet. The company offers Application Performance solutions that improve the performance of dynamic applications used by enterprises to connect with their employees, suppliers, and customers. Its Application Performance solutions include web Application Accelerator, which enables enterprises to run various applications, and IP Application Accelerator, that is designed to address core Internet weaknesses to optimize the performance and real-time sensitivity associated with IP-enabled applications delivered over Internet-related protocols. It also provides Digital Asset solutions that enable enterprises to execute their large file management and distribution strategies. The company’s Digital Asset solutions include Akamai Media Delivery solution that delivers media content on behalf of its customers; and Electronic Software Delivery solution, which handles the distribution of software for its customers. In addition, it offers Dynamic Site solutions, which accelerate business-to-consumer Websites that 3 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology integrate collaborative content and applications into their online architecture; Advertising Decision solutions that enable advertisers, agencies, publishers, and networks to buy and sell advertising; and custom solutions to commercial and government customers. These primarily relate to collecting statistical data regarding exposure and penetration rates in a given market demographic. Additionally, the company offers other solutions, such as network data feeds and Website analytics, which provide customers with real time data about the performance of their content and applications over the Internet; and performance management services that help customers better understand their Web operations with tools that measure various aspects of an application’s performance. Essentially, in more simple terms, what all of this means is that if you have content that you need to be put on the web, managed, reported on, or delivered to customers, Akamai is the company who can do it for you. Industry Analysis In order to analyze this industry, an investor must first decide specifically what industry Akamai was in. Our team used the following methodology: The North American Industry Classification System places Akamai under the code 54512. This code can be broken into components to determine its classification. The first two digits, 54 indicate professional, scientific, and technical services. Within the 54 code Akamai has a subcode of 512 which corresponds with computer systems design services. This U.S. industry comprises establishments primarily engaged in planning and designing computer systems that integrate computer hardware, software, and communication technologies. The hardware and software components of the system may be provided by this establishment or company as part of integrated services or may be provided by third parties or vendors. These establishments often install the system and train and support users of the system. 4 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology In this industry, there are really only four major players, each trying to establish as much stake in the industry as they can. These players are Akamai Technologies, Level 3 Communications Inc., Limelight Networks Inc., Mirror Image Internet Inc. Company Analysis and Major Product Prospects As the use of the Internet advances, so does Akamai. From their annual report, Akamai expects to see three trends shaping the future of the Internet and their business in the years ahead – the growth of cloud computing models for enterprise-class applications of information technology (IT), the adoption of high definition (HD) video online, and the shift of advertising dollars online to follow the migration of audiences to new media. In order for Akamai to continue to be profitable, they will have to be major players in the Cloud computing, HD streaming, and Online Advertising markets. The following is how they plan on doing just that. Cloud computing, the buzz-word of the past few years across the IT industry, is quickly becoming a reality. The notion of moving applications out of the data center and into the “cloud” is gaining traction. Not only does this shift to the cloud offer significant cost savings to enterprise customers across all verticals, but it also creates a flexible way to manage assets and applications. Akamai’s customers require access to anyone, anywhere, anytime as globalization and mobility trends continue to advance – and while customers want to achieve the cost savings that come from cloud computing, they cannot afford to sacrifice performance. As this evolution in computing proceeds, the focus on performance and cost efficiency of an enterprise’s application environment fundamentally shifts from the data center to the cloud. We believe that Akamai is uniquely situated to address these imperatives with cloud optimization services, such as Application performance Solutions. 5 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology The year of 2009 demonstrated that Akamai has played an increasingly important role in improving the performance of customers’ mission-critical applications and systems online. Notably, Akamai saw significant growth in providing fast, reliable, and secure web application acceleration for numerous Software as a Service (or SaaS) companies. SaaS transactions on the Akamai network alone have grown twenty times in the past three years. Platform as a Service (or Peas) and Infrastructure as a Service (or Iasi) are two additional opportunities in the cloud computing market where Akamai’s cloud- based technology can be used to accelerate application performance over the Internet. Akamai is continuing to focus on product innovation in this market. For example, the introduction of their Web Application Firewall service in 2009 was designed to extend the rules of customers’ firewalls to the edges of the Internet, so that any attack on a customer’s origin site is resisted by Akamai’s massively distributed network, rather than at the customer’s data center. They believe their new cloud computing services will be an in-road to new markets such as financial services, healthcare, and technology consulting and services where security is a high priority. As enterprises increasingly look to the cloud for more cost-effective answers to meet their IT needs, they intend to expand their portfolio of services to meet those needs and to enable the adoption of more cloud computing services enhanced by Akamai. The Akamai HD Network Simply put, video distribution online is changing the media industry. With the increase in high-speed last mile connectivity and the proliferation of new Internetenabled devices, the amount of time that consumers are spending on the Internet for entertainment and information has continued to grow, and more of that time is spent consuming high-quality online video. As a result, Akamai customers have been shifting 6 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology their businesses, making more and more high-quality, rich media content available to consumers online. As this occurs, the ability to deliver massive amounts of HD video online – at scale, with high quality, and cost-effectively – becomes a major challenge for enterprises. In 2009, Akamai introduced the Akamai HD network, their revolutionary approach to addressing the future of HD video delivery. The Akamai HD network is designed to enable enterprise media customers to provide millions of consumers with an online HD experience much like the TV experience to which we are all accustomed. For their customers, this can be managed from a single network for all major formats and encoding rates, eliminating much of the cost and complexity of bringing new video content online. Beyond just delivering video, they also provide their customers with the analytics and other capabilities they need to better understand and manage their online media businesses. Akamai has differentiated itself from traditional ISPs in that it hosts media for the client company, as opposed to merely providing network access for content delivery. Advertising Decision Solutions As audiences shift to the Internet and more entertainment and information content moves online, advertising budgets have been following target audiences and shifting to the Web as well. Akamai believes that a key enabler for online advertising is an accountable, real-time, data-based approach to ad placements that gives marketers a way to better measure and manage the effectiveness of their campaigns. During the year, they celebrated the one-year anniversary of the successful acquisition of Acerno, integrating a unique data co-op into their Advertising Decision Solutions offering. The marriage of this data cooperative with sophisticated and proprietary predictive models is designed to increase the effectiveness of their customers’ online ad campaigns. 7 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology Akamai further enhanced their solution by tightly integrating it with their Dynamic Site Accelerator solution for e-commerce customers, and introducing a pixelfree approach for predictive advertising that enables faster time-to-market for ad campaigns that do not tax our customers’ IT resources. Looking forward, Akamai believes that their ability to manage and utilize predictive data on a real- time basis, combined with their strong relationships with publishers, advertisers, and advertising networks, puts them in a unique position to help customers as the online advertising business continues to evolve. Financial analysis: The comments below interpret some of the forecast assumptions and also elaborate on drivers of trends evident over the 5 year period. Sales Growth – Assumption – increasing sales Akamai is poised to be the “go-to” technology enabler for a number of firms exposed to explosive growth over the medium term. Netflix, for example, as one of AKAM’s most popular customers is on a path to surpass several major cable TV networks in the next 5 years. This will bring a significant growth in NFLIX usage of AKAM networks with a corresponding increase in revenue. AAPL is another company poised to significantly grow its streaming needs in the next five years. AAPL will likely adopt a cloud-based model for its iTunes ecosystem in order to allow users to access purchased content anywhere, any time. Both NFLIX and AAPL are companies with a strong interest in getting the presentation of digital content in the living room “right” and AKAM is the provider of distribution for both. In addition to a stable of valuable companies with strong growth prospects, AKAM will likely see sales growth from other firms seeking to enter the digital distribution market. Major TV networks are a possibility in this regard. Each network is currently implementing a different solution to bring content to users directly (further 8 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology squeezing the current cable providers) – and AKAM has the potential to become the conduit for one of the major networks. These factors combine to create a very positive outlook on the firm’s sales growth. After evaluating the firm’s asset and income history, the firm has not taken on large amounts of debt to finance its growth, choosing instead to use cash from operations. Should the firm choose to continue this strategy, growth will be capped by the cash available from operations, some steady debt growth and new equity issues. Tying this together, sales growth is projected at around 18% over the next five years with a taper toward the end of that interval as the current forecasted digital transition completes. It is extremely unclear what form content consumption, creation and distribution will take beyond the horizon of the current cycle. AKAM may adapt well and find itself well positioned for continued growth. Period Ending Total Revenue Revenue Growth Revenue Growth % Cost of Revenue COGS % Gross Profit Gross Margin 31-Dec-14 Projected 31-Dec-13 Projected 31-Dec-12 Projected 31-Dec-11 Projected 31-Dec-10 Projected 31-Dec-09 31-Dec-08 31-Dec-07 1,916,394.40 1,652,064.14 1,400,054.35 1,186,486.74 988,738.95 859,773.00 790,924.00 636,406.00 264,330 252,010 213,568 197,748 128,966 68,849 154,518 16.00% 18.00% 18.00% 20.00% 15.00% 8.70% 24.28% 496546 25.91% 456546 27.63% 386465 27.60% 336654 28.37% 294675 29.80% 249,938 29.07% 222,610 28.15% 167,444 26.31% 1,419,848.40 1,195,518.14 1,013,589.35 849,832.74 694,063.95 609,835 568,314 468,962 74.09% 72.37% 72.40% 70.93% 71.85% 73.69% 71.63% 70.20% Margins 9 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology In general, it appears to be reasonable to expect AKAM to reach further scales with its network growth and for distribution packages to become in a general decrease in all margins. COGS is expected to fall as network efficiency increases along with more clients purchasing similar services from the firm. 2010 EPS Numbers We project an EPS for 2010 in the realm of $1.00, reflecting significant growth of sales in client firms reporting for Q3 2010. Capitalization – AKAM’s stable interest expenses and debt balances are evidence of cash from operations being significant to finance growth. However, it is expected for the firm to access the equity markets over the next 5 years for additional capital to finance growth. The firm’s rising stock price will make this re-capitalization a rather cheap source of capital over this term. AKAM has a debt/equity ratio under 5% at present, a sign that interest expenses are well under control. Its current ratio, or calculation of current assets divided by current liabilities is 3.89, meaning that in general, 3.89 dollars exist to pay every current bill. The company is poised for growth and has a wide range of options for future capital. Should AKAM need to borrow in order to finance further growth or enhance shareholder returns, it is in excellent financial condition to do so. Tax Rates – Tax Expense, as a percentage of EBIT should decline or remain stable over the forecast period due to growth of international distribution sales. Period Ending 31-Dec-14 Projected 31-Dec-13 Projected 31-Dec-12 Projected 31-Dec-11 Projected 31-Dec-10 Projected 31-Dec09 31-Dec08 10 31-Dec07 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Tax Rate Net Income Earnings Per Share Common Stock 12654 11654 12646 15644 17456 16,591 25,096 26,363 682,082.40 564,620.14 471,824.35 393,765.74 306,461.95 240,071 237,360 171,291 3865 3465 3654 3143 3024 2,839 2,825 3,086 678,217.40 561,155.14 468,170.35 390,622.74 303,437.95 237,232 234,535 168,205 245645 198465 164654 134654 114564 91,319 89,397 67,238 36.01% 35.15% 34.90% 34.20% 37.38% 38.04% 37.66% 39.25% 432,572.40 362,690.14 303,516.35 255,968.74 188,873.95 145,913 145,138 100,967 $1.84 235465 $1.54 235465 $1.41 215434 $1.19 215434 $1.00 188658 $0.77 $0.78 $0.55 188658 186,685 185,094 Summary - AKAM is a tightly run firm with a low debt expense, declining actual tax rate and expected rises in economies of scale. Significant business growth of client companies will serve to drive increased revenues throughout the next business cycle. It is expected that as content producers and consumers create a marketplace for digital content over the next 5 years, that AKAM will reap excellent profits in providing the distribution and connectivity for both parties. Recent announcements from Netflix and Level 3 regarding a contract for streaming content delivery may affect AKAM in future earnings periods. AKAM still retains excellent earnings opportunities, however, it will be important to monitor the effect of Netflix shifting its business. AKAM as a standalone firm is very healthy, but it is unclear what synergies exist in the market to make it an attractive M&A target. Valuation: The stock evaluation model we used to evaluate Akamai’s stock is composed of the following factors: the growth of the industry, the demand for business, and Akamai’s 11 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology efficiency to keep up with supply and demand in their market. We believe that global consumers will increase their reliance on the internet as their primary source for news, entertainment, shopping, and travel arrangements. Studies also show that society will turn to the web more frequently to engage in social networking and other forms of communication. In theory, we expect businesses to respond to the surge by expanding the functionality and richness of their web offerings, changing the way they personalize online offers, and increase the total number of products and services they provide online. With that stated, “Cisco is projecting that Global IP traffic will grow at a 39% compounded annual growth rate between 2009-2013 and that mobile data traffic will grow at more than twice that rate” (Morning star.) We feel that Akamai will continue to be a leader in the industry and increase their market share more than their current 73,000 servers, in 70 countries, within nearly 1,000 networks. This means that 85% of the world’s internet users are within a single “network hop” of an Akamai server. The free cash flow model analysis for the next five years is calculated by using a free cash flow growth rate of 17% and a terminal growth rate of 5%. It also includes a required rate of return of 9% when using the CAPM model with a beta of .77. All of the combined data gave us an intrinsic value of $84. Free cash flow available to equity holders (FCFE) (million) Estimated FCFE growth rate for next five years $ 316.00 17% 12 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology 5% 9% 181 FCFE growth rate after five years Required rate of return # of shares (million) Year $ FCFE 0 1 2 3 4 5 316 $ 370 $ 433 $ 506 $ 592 $ 693 $ $ 20,265 419 $ 450 $ 13,171 Value of total equity $ Present value of Cash Flow Value of Equity today $ 15,135 # of shares (million) $ 181 Stock Price $ 84 339 $ 364 $ 391 $ 6 811 Because $84 seemed to be too high from the current market price of $47, we became more aggressive with the required rate of return and used 10%. This calculation gave us an intrinsic value of $66. Therefore the stock is undervalued and is a Commodity. Free cash flow available to equity holders (FCFE) (million) Estimated FCFE growth rate for next five years $ 17% 5% 10% 181 FCFE growth rate after five years Required rate of return # of shares (million) Year FCFE 316.00 $ 0 1 2 3 4 5 316 $ 370 $ 433 $ 506 $ 592 $ 693 $ Value of total equity 13 6 811 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology $ Present value of Cash Flow Value of Equity today $ 11,975 # of shares (million) $ 181 Stock Price $ 66 336 $ 357 $ 380 $ $ 16,212 404 $ 430 $ 10,066 Bulls vs. Bears: Bulls Akamai is a technology driven company. As technology increases and becomes less expensive to the consumer, more people are accessing their television shows and movies online. As time progress and technology continues to improve, Akamai’s growth possibilities are almost unlimited due to the shift in content consumption trends. As consumer’s lives become busier and convenience becomes a priority, streaming their favorite television shows and movies becomes an easier way to watch their favorite shows or movies when and where it is convenient for the consumer. Akamai stands to benefit by enabling content producers a channel to distribute their assets directly to consumers Akamai is also in a very favorable position to provide advertisers access to millions of consumers who purchase or stream content from its network. Akamai’s client list is a well-diversified group of companies in various industries. From public-sector services funded by government spending, to major corporate 14 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology infrastructure deployments, to front-end consumer portals, Akamai is not dependent on the delivery of one particular type of content distribution model or service (Morning star). Some customers include Best Buy, Victoria’s Secret, NASA, NFL, and Red Bull. These companies are highly committed to Akamai, so they are unlikely to switch to another company. Bears The competition that Akamai is up against includes Limelight Networks, Level 3 Communications, and Mirror Image Internet (Yahoo! Finance.) Akamai is the largest and most popular of the four big competitors. All companies will possibly end up competing for the same market share, which in turn means lower prices. This will hurt the profit margin. The industries where Akamai competes include computer services, business services, consulting, web consulting, application service providers, and information technology services. Akamai must differentiate from its competition in order to be successful. Many people are committed to their cable television providers; this could be because they have been using the same company for several years, or it could just be because they like to channel surf. Akamai’s clients must compete against other firms in these entrenched markets. Many companies may be able to do their own streaming services. As many companies are cutting costs Akamai may be one of the first to go (Morning star). The Moat: Akamai operates in an extremely competitive industry dominated by a constant flow of new, game-changing ideas. The existing business relationships it has formed allow it to rapidly respond to customer needs. 15 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology The business of content delivery requires a massive deployment of technology resources at substantial cost. This both helps and hinders the firm. New competitors must purchase and deploy cutting-edge hardware and also forge profitable relationships with customers, however, the cost of existing infrastructure is nearly always falling while newer hardware costs remain constant. Akamai faces a push-pull of outside firms possessing the ability to duplicate its current offerings while being forced to invest in new assets at a premium. While the firm’s moat is not as substantial as that enjoyed by firms such as WalMart and Microsoft, it is substantial in that its network is deployed and capitalized with future costs comprising of either upgrades or incremental expansion. Competitors face the need to build the soup to nuts solution while also shaving margin to win business. Akamai stands to benefit from the global shift in content consumption, and will earn significant economic profits over that term. However, over the long term, content distribution will become a commodity provided at lowest cost. It is unclear whether the firm can offer superior returns over the long-term without further evolving its offerings. The 5-10 year outlook is positive, with the current moat structure eroded heavily in that timeframe. Risk: Due to the highly competitive and innovative nature of today’s society, all great companies come with risk. This is especially true of technological investments because the market is intensely competitive, highly fragmented, and rapidly changing. Akamai must continue to meet the varying needs of their customers by remaining innovative and responding to emerging technological trends. (10k) 16 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology The firm must also prudently manage its growth. Since the launching of their commercial service in April 1999, Akamai has experienced a steady growth both internationally and in the United States. For this evolution to continue, Akamai’s team must remain dedicated to find new resources for system adaptations. Because this company is international, there is the risk of the business becoming affected by various global economic and market conditions. Some of these affects could decrease revenues and operating cash flows. (10k) Since its beginnings in 1995 by Tim Berner-Lee, Akamai conducts a large amount of World Wide Web traffic including daily Wed transactions for well-known companies such as NASDAQ and NBC. Some of Akamai’s operating risks are new to the business world altogether. Distributed network attacks pose a risk to timely content delivery. Akamai’s must safeguard its bandwidth and server infrastructure to continue its ability to meet service level agreements. (10k) Akamai’s growth prospects expose t to financial risk, especially during the global recession. Access to capital markets is often critical for expansion. Akamai must maintain its ability to raise external capital in order to fund business growth beyond the cash generated from operations. Also, Akamai faces many of the same risks that all tech stocks possess; however, the internet appears to be a permanent fixture in the future business environment. The firm’s growth depends on its ability to engineer relevant, valuable solutions for its clients. (10k) Investing strategy: While reviewing Akamai’s stock we feel that now is the perfect time to buy with the stock being at 30% discount. Akamai is in a great position right now as it is a leader in its industry while also a growth stock. “The industry will continue to grow significantly over the next 5 years because of high demand of internet traffic from businesses and 17 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology consumers” (Akamai). After holding the stock for three years we feel that you should assess the risk and reevaluate your position to receive the best value for your portfolio. Notes: Some highlights from Akamai’s 2010 10k: In 2005 Akamai acquired Speedera Networks, Inc. The purchase price was $142.2 million which was comprised primarily of Akamai’s common stock. $137.4 million of the costs were allocated to goodwill and other intangible assets. Net income for the years ended December 31, 2005, 2006, 2007, 2008, and 2009 included $5.1 million, $8.3 million, $7.4 million, $6.1 million, and $4.8 million, respectively for the amortization of other intangible assets. In 2006, Akamai acquired Nine Systems for $157.5 million. It was comprised primarily of their common stock. It was accounted under the purchase method of accounting. $168.4 million of the costs were allocated to goodwill and other tangible assets. Net income for the years ended December 31, 2006, 2007, 2008, and 2009 included $.1 million, $3.3 million, $4.1 million, and $4.4 million, respectively for the amortization of other intangible assets. In March 2007, Akamai acquired Netli, $154.4 million under the purchase method of accounting. Akamai allocated $148.4 million of the cost of this acquisition to goodwill and other intangible assets. Net income for the years ended December 31, 2007, 2008 and 2009 included $0.7 million, $3.1 million and $4.0 million, respectively, for the amortization of other intangible assets. In April 2007, Akamai acquired Red Swoosh for $18.7 million, consisting mainly of their common stock. T $16.9 million of the costs were allocated to goodwill and other intangible assets. Net income for the years ended December 31, 2008 and 2009 18 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology included $0.1 million and $0.4 million, respectively, for the amortization of other intangible assets. In November 2008, Akamai purchased Acerno $90.8 million in cash. This acquisition was accounted for under the purchase method of accounting. $100.3 million was allocated to goodwill and other intangible assets. Net income for the years ended December 31, 2008 and 2009 included $0.5 million and $3.1 million, respectively, for the amortization of other intangible assets related to this acquisition. Acerno is now their premium ad network. Akamai wanted to find a way to cut operating costs so they announced they would be cutting 110 jobs which was about 7% of its work force in November of 2008. On October 29, 2009 Akamai opened an internal investigation because an executive allegedly provided insider information to the people involved in the Galleon Group case. References: "10k." Akamai: The Leader in Web Application Acceleration and Performance Management, Streaming Media Services and Content Delivery. Apr.-May 1998. Web. 25 Oct. 2010. <http://www.akamai.com/>. Yahoo! Finance - Business Finance, Stock Market, Quotes, News. Oct.-Nov. 2010. Web. 24 Oct. 2010. <http://finance.yahoo.com/>. "Akamai." Hoovers | Business Solutions from Hoovers. Oct.-Nov. 2010. Web. 25 Oct. 2010. <http://www.hoovers.com>. 19 S&P Value Fair Value Strategy Consider Sell Moat Industry 57.00 66.00 Buy 84.00 Yes Technology Morningstar Stock, Mutual Fund, Hedge Fund, ETF Investment Research. Oct.-Nov. 2010. Web. 25 Oct. 2010. <http://www.morningstar.com/>. 20