Thursday, November 11, 2010

Level Three replaces Akamai at Netflix?

Netflix announced today that Level Three would be their video streaming and storage server provider, replacing Akamai in that capacity. I am clueless about the technology involved and the rationale for the change. As someone who looks at financial strength as one important metric for a company, I am perplexed.

LVLT has $6.4 billion of long term debt and no measurable shareholder's equity as of their last reporting period. It is consistently unprofitable and their stock price reflects that, meaning if they needed to raise additional equity for investment purposes it would be a challenge. AKAM has no long term debt, $2 billion of shareholder's equity, a record of consistent profitability, and a stock price that provides exceptional financial flexibility.

Netflix is growing rapidly and its stock has certainly been rewarding, and those observations are both understatements. Continuing its almost inevitable build out, it is simply a question mark here as to why they would choose such a fragile primary vendor. There must be a good reason, but it is a choice that's eye-catching.


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