Mindblowing Amounts of Data
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Global internet usage still has a long runway of growth ahead. These two charts, forecasting total IP traffic and mobile data traffic, illustrate this point.
By the end of 2015, the world will surpass the milestone of consuming one zettabyte in a year. What's a zettabyte? By my math, it's one thousand trillion megabytes. The number of devices connected to the internet will be more than twice the global population by 2015. I could hit you with paragraphs and paragraphs of statistics, but the bottom line is that internet data usage, both traditional and mobile, is expected to grow at an annual rate of 30% over the next 5 years. Not only will the number of devices grow at a strong rate, but average data use per device will increase significantly.
That's Interesting, Now What?
There are a couple of companies that have caught my attention as opportunities for investment and potential profit from the data boom. Akamai Technologies Inc. (NASDAQ: AKAM) offers a diversified suite of cloud based solutions for their customers. Some of their services include traditional website and mobile site optimization, Enterprise cloud applications, web security, internet media distribution, and CDN networks. On any given day, they are responsible for delivering 15 to 30 percent of total web traffic. Their customer base spans a wide swath of industries, including media & entertainment, online retail, financial services, hotel and trave, insurance, and health care. The majority of these customers are on annual or multi-year contracts. Revenues are heavily dependent on the continuation of these contracts, and competition is fierce. The future of the company will be made or broken by their ability to retain old customers and bring in new customers. They are in an outstanding financial position, though, with zero debt and strong positive free cash flow. The stock is trading at over 4x sales and 14x cash flow, so I would need to convince myself of their growth story to consider investing in the company. Revenues and net income dropped in the first quarter of FY12, and the stock price has been sliding since. This could be an opportune moment to buy.
Juniper Networks Inc. (NYSE: JNPR) is a leading provider of network infrastructure. It stands to reason that increased IP traffic will require expenditures on supporting infrastructure, and Juniper's customized services make them a go-to for service providers and Enterprises. The 800 lb. gorilla in the room when considering Juniper is Cisco Systems Inc. (NASDAQ: CSCO), the networking giant that is refocusing on their core competencies of network infrastructure. The market is placing a premium on Juniper over Cisco:
Juniper's 5 year revenue growth rate is more than double that of Cisco, so the premium may be deserved. There is much debate whether Cisco is a value play or trap. The metrics are tempting, and growth opportunities will be abundant. There is enough space in this market for multiple players, so both Cisco and Juniper stand to reap the rewards of increased data demand.
There's a lot of financial punditry going on with regards to which OS will win the hearts of app developers, which mobile device will reign supreme, which online video platform will deliver the most content to the highest number of subscribers, and so on and so on. Whichever way the fickle consumer marketplace goes, I can be sure it will result in increased data usage. The three companies in this article are poised to profit no matter who wins the mobile war. They are all established, recognized brands with existing sticky relationships across the private and public sector. I plan on adding all three to my Watchlist and digging deeper over the coming weeks.
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