QUOTE AND NEWS
Benzinga  Jul 8  Comment 
Tracking hedge fund activity is crucial to many investment strategies. This article will take a look at some of the most relevant moves from Monday and Tuesday. On Monday, David Cohen and Harold Levy’s Iridian Asset Management, a hedge fund...
Benzinga  Jun 5  Comment 
In a report published Friday, Cowen and Company analyst Colby Synesael downgraded the rating on Internap Corp (NASDAQ: INAP) from Outperform to Market Perform, while maintaining the $11 price target. "Based on interviews with current/past...
Benzinga  Apr 27  Comment 
RDG Capital Fund Management ("RDG"), a significant shareholder of Internap Corporation ("Internap" or the "Company") (NYSE: INAP), announced today it has delivered a letter to the Company's Board of Directors (the "Board"). The letter notes...
Benzinga  Apr 13  Comment 
Under Armour, Inc. (NYSE: UA) shares touched a new 52-week high of $85.249 following the victory of Jordan Spieth in Masters. Dillard's Inc. (NYSE: DDS) shares climbed 0.64% to reach a new 52-week high of $143.13. Dillard's PEG ratio is...




 
TOP CONTRIBUTORS

Internap Network Services (NASDAQ: INAP) specializes in internet traffic routing technology. The company purchases excess bandwith from backbone telecommunications companies such as Level 3 Communications (LVLT), AT&T (T), and Sprint Nextel (S), which it then uses to route traffic from its clients' websites to ensure its speedy delivery through the internet. The company earned $256 million in revenue but incurred a net loss of $69 million in 2009.[1]

In addition to making sure this excess bandwith is available for its clients, Internap uses proprietary software to route its clients' traffic in the most efficient way possible. Data may travel several hops through intermediate servers on its way to its final destination, and Internap makes sure its clients' data takes the fastest path with the fewest delays.

Company Overview

Internap divides its services into four segments:[2]

  • High Performance Internet Protocol - this group routes clients' internet traffic more efficiently for INAP clients. Internap guarantees the efficiency and uptime of the service. It does this by purchasing network access through redundant service providers such as Level 3 Communications (LVLT), Sprint Nextel (S), and AT&T (T). These companies control the internet "backbones" that move traffic through the internet traffic hubs.
  • Data Centers Service - Internap also operates clusters of computer servers that clients can use to host their data. This removes the possibility of a bad connection between Internap and the clients' access location, impairing transmission between the two nodes, as Internap is in physical possession of the client's data.
  • Content Delivery Network - A content delivery network is a proprietary network of servers that are physically close to a company's users. A company can make sure copies of its website are on each of these servers, and therefore decrease download time. This process, known as caching, is especially important for online video websites, which are particularly bandwidth-hungry.
  • Other - Internap also offers other bundled services which help its clients manage their data and monitor how their traffic is performing, such as a firewall service, and software that analyzes and re-routes Internet traffic flows in real-time.

Business Growth

FY 2009 (ended December 31, 2009)[1]

  • Net revenue remained flat at $256 million. Revenue from data center services increased by 14%.
  • The company incurred a net loss of $69 million an improvement over the net loss of $105 million in the previous year.

Trends and Forces

Increasing complexity in the physical design of the internet will increase demand for Internap's services

As mentioned in the introduction, internet traffic must pass through several steps to arrive on the desktop of the end user. As can be seen to the right, the hub-and-spoke model of the internet can be likened to air traffic, as is further demonstrated in the image below. If traffic needs to get from one side to the other, it likely needs to go through the ultra-congested middle. This pattern increase with more users, and the hub-traffic becomes denser and denser.

Error creating thumbnail
Internet node traffic, from wikicommons[3]
Error creating thumbnail
Representation of all of the city-to-city hub connections on the internet[4]

Growing Business-to-Business E-Commerce will make Internap's offerings more attractive

Internap's primary IP services business does not face or affect the end user. Instead it transfers data between business servers. Given that these transfers are critical to potential clients as a "necessary step" before transmission to the end-user, they are also a potential bottleneck that clients would like to avoid. This opportunity, along with the above opportunity of increasing complexity, will be key drivers of Internap's future growth.

Slim margins will continue to threaten Internap's operations

Internap has not historically been able to earn profits from its operations. This is primarily due to large variable costs that eat into margin, since it purchases access from network backbone providers like AT&T (T). This weak margin brings into question whether the business is sustainable, and margin issues will be magnified in situations where the below two forces - competition and commoditization - come into play.

Internap's financial position is threatened by competition

Internap's business is cash-flow negative, and it has typically had to meet cash requirements by selling more stock or borrowing money. Since INAP does not have incoming cash flow, it cannot reinvest in its own business to stave off competitors or develop its technology. Internap's growing content delivery business is dominated by Akamai Technologies (AKAM), and Internap's reliance on the telecom third-parties for access makes them vulnerable, as competitors can either offer competing products or co-brand services that offer a similar integrated product as Internap. This is amplified by INAP's own missteps in the content delivery arena, as integration of VitalStream has been dicey.

Commodization of bandwidth and backbone access is a threat to Internap's relevance

Part of Internap's value proposition is that it is connected to many redundant internet suppliers via AT&T (T) and other telecommunications companies. These services are expensive for individual customers who only need stable internet access, unlike business clients who need multiple dedicated connections. If the price of access decreases, however, it will be easier for Internap's clients to cut out the middle-man by providing direct internet backbone to the end user.

Competitors

Internet Connectivity Providers

  • Major Telecoms such as:
  1. AT&T (T)
  2. Global Crossing (GLBC)
  3. Qwest Communications International (Q)
  4. Verizon Communications (VZ)

Internap offers connectivity to its clients that has been bundled from the above providers and resold. However these owners of the internet backbones transfer data all over the wired world, and thus have tremendous power in the industry. Although their model does not offer the same guarantees that INAP does, they provide the underlying service that makes INAP's existence possible. While Internap promises to deliver a better service, improvements in the competitor's own network to improve reliability and up-time, or a decreased need for insurance/performance on the client's end, will erode INAP's economic niche.

Personal lesson lernat: I will now save all my Oyster history (before it expires every 3 months), check-ins, and latitude. I want to be ready for questioning. Ah, ok! I was starting to worry that you could end the post without any REAL paranoia symptom :-D

Content Delivery Networks

Content delivery is the final leg of Internap's value proposition to clients, and is growing rapidly. However, this industry has long been dominated by Akamai Technologies (AKAM).

References

  1. 1.0 1.1 INAP 2009 10-K "Selected Financial Data" pg. 22
  2. INAP 2009 10-K "Segments" pg. 3-4
  3. Wikipedia and Wikicommons. "Visualization of various routes"
  4. Chrishanson.net "Internet Map".
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki