May 22, 2008 / 3:31 PM / 12 years ago

UPDATE 1-RESEARCH ALERT-Goldman cuts Akamai to sell; shares fall

(Recasts; adds details, share movement)

May 22 (Reuters) - Goldman Sachs downgraded Akamai Technologies (AKAM.O) to “sell” from “neutral” and added the company’s shares to its Americas Sell List on concerns that increasing competition could hurt the provider of Web acceleration services, sending the shares down 9 percent.

Akamai, which helps companies such as Apple Inc (AAPL.O) deliver online music and video by navigating less-congested routes over the Web, faces intensifying competition as private entrants proliferate and selected large network operators begin to eye the space, the brokerage said.

Goldman said there are currently close to 40 content delivery network (CDN) service providers, many of whom have started services in the past year. Almost $300 million in venture capital was raised in the last 18 months, the brokerage said.

“The sheer volume of new competitors emerging in such a short period of time draws into question how high barriers to entry are in the space,” analyst Derek Bingham said in a note.

Bingham said Korea-based CDNetworks Co 073710.KQ, an established global player, is now making a push into the U.S. market and adding to the intensity of competition.

Other new entrants include some major network providers, such as Level 3 Communications Inc LVLT.O and AT&T Inc (T.N), with vast captive customer bases, for whom CDN services should be of relatively little marginal cost.

“While portions of Akamai’s customer base are likely relatively immune from competitive pressures, we believe that the majority of Akamai’s 2,700 customers will be able to put increasing pressure on the company as contracts come up for renewal this year,” Bingham added.

Bingham said the company’s shares were expensive and cut his price target to $33 from $35.

Shares of Akamai fell to a low of $35.89, before recovering some losses to trade down $3.14 at $36.13 Thursday morning on Nasdaq. (Reporting by Jennifer Robin Raj in Bangalore; Editing by Pratish Narayanan)

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