Updated from 11:14 a.m. EDT
reversed gains made Monday after the company said it would provide sound and video software to
, which stores and delivers to Internet users portions of Web pages that require extensive computer memory.
Financial terms were not disclosed.
By early afternoon, the stock had reversed itself, falling 3 11/16, or 7%, to 46 5/16. (RealNetworks closed down 5 1/4, or 11%, at 44 3/4). Analysts pinned the stock's misfortunes on a selling frenzy around the Internet sector, led by a 16% drop in
Credit Suisse First Boston
lowered its rating on the company's stock.
Meanwhile, Akamai shares fell 17 11/16, or 12%, to 128. (Akamai closed down 12 3/8, or 8%, at 133 5/16).
Under the agreement, Akamai will use RealNetworks' Realsystem G2 software, which is used to broadcast sound and video images on the Internet.
Currently, Akamai maintains around 2,750 Web servers in 45 countries. The servers store and deliver chunks of data like graphics, which require large amounts of memory, upon request from companies that maintain Web sites. That service allows the Web site companies to respond to requests from customers more quickly, analysts said.
The deal with RealNetworks will boost Akamai's ability to store and deliver more complicated chunks of data like video and music clips, industry analysts said.
RealNetworks' competitors include Windows Media Services, part of
Windows 2000 Server, and QuickTime, software made by
Microsoft has a $15 million investment in Akamai.
Apple invested $12.5 million in June in Akamai, for approximately 5% of the shares of the company at the time the investment was made.
"The expansion of this agreement showcases RealNetworks' status as the leader in the streaming media market," said Adam Holiber, analyst for
Wedbush Morgan Securities
, an independent Los Angeles-based investment bank. "Microsoft, unfortunately for them, is significantly behind in this space." Holiber rates RealNetworks a strong buy and does not cover Akamai. His firm has done underwriting for neither company.
RealNetworks is dominant in the industry, and Microsoft's and Apple's persistence is testament to the broadband industry's perceived growth potential, Holiber said.