Every transition should be so boring. After deliberating for a few months, the cloud computing company Akamai made one of its founders, Tom Leighton, its chief executive. The market nodded approvingly but without surprise; the shares rose 1.5 per cent.
Continuity is natural given Akamai's steady record. If fourth-quarter results come in as expected, its average annual revenue growth since 2007 will hit 17 per cent; growth in free cash flow per share will be 12 per cent. The results combine with an appealing business model. Akamai's content delivery network allows its clients to deliver content and software faster and more reliably over the internet. A bit like web-hosting company Rackspace, owning Akamai shares is a bet on internet services growth without having to predict the next big thing.
Akamai shares look good value. The business is capital intensive (capital expenditures have averaged 12 per cent of revenues over the past five years), but less than Rackspace (26 per cent). While Rackspace is expected to grow faster, Akamai is much cheaper, with a prospective price/earnings ratio of 20 against Rackspace's 65. There have long been worries that Akamai's core content delivery business will be commoditised, but Akamai has added new services to its offering, and kept margins wide. Akamai also looks cheaper by most measures than companies from Netflix to Salesforce that provide internet services of the sort that it helps deliver.
Akamai's shares have been volatile: near $40 now, they hit $20 in 2011 and $50 in 2010. Growth stocks with new business models make people jumpy, especially when economic growth is unsteady. That is as it should be. But if Akamai's shares back off from here – if, for example, fourth-quarter results come in soft – investors should put hesitation aside and buy.