Did Limelight Networks Crash for All the Wrong Reasons Today?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Content-delivery specialist Limelight Networks (NASDAQ: LLNW) reported second-quarter results Wednesday evening. The results fell short of analyst expectations and management slashed their full-year estimates across the board, with an eye toward acceleration in the back half that should carry over into 2020. Investors shrugged at the promise of long-term improvements and focused on the more disappointing details instead, sending share prices as much as 15.2% lower in Thursday’s trading session. At the end of the day, Limelight had recovered to close the session down 10.2%.” data-reactid=”11″>Content-delivery specialist Limelight Networks (NASDAQ: LLNW) reported second-quarter results Wednesday evening. The results fell short of analyst expectations and management slashed their full-year estimates across the board, with an eye toward acceleration in the back half that should carry over into 2020. Investors shrugged at the promise of long-term improvements and focused on the more disappointing details instead, sending share prices as much as 15.2% lower in Thursday’s trading session. At the end of the day, Limelight had recovered to close the session down 10.2%.

Here’s a closer look at Limelight Networks’ current and near-future business trends.

Limelight Networks’ second-quarter results: The raw numbers

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Data source: Limelight Networks. GAAP = generally accepted accounting principles.” data-reactid=”16″>Data source: Limelight Networks. GAAP = generally accepted accounting principles.

What happened with Limelight Networks this quarter?

• Your average analyst was expecting an adjusted loss near $0.02 per diluted share and revenues in the neighborhood of $46.4 million. Limelight fell just short of both targets as its adjusted net loss per share stopped at $0.03.
• Limelight had a global edge server capacity of 28 terabytes per second at the start of 2019, aiming to boost that bandwidth cap to 50 terabytes per second this year. That effort is ahead of schedule, including a 10-terabyte increase in the second quarter as the company rolled out a more efficient version of its software to 80% of the installed edge devices. That improvement was achieved with a near-zero-dollar capital expense.
• On top of that, a close partnership with LM Ericsson is giving Limelight access to a global 50 terabytes-per-second network presence at the very heart of the network-equipment vendor’s customer networks. The collaborative content-delivery network, known as Ericsson Edge Gravity, is currently rolling out across several countries.
• If Netflix investors worry about a proliferation of streaming video services, that threat looks like fresh revenue streams to Limelight. The company is a leader in high-quality delivery of video streams, counting Amazon and its Prime Video service as the only 10% customer in this quarter. Other Netflix challengers are also lining up to take advantage of Limelight’s network services when their platforms enter the market later this year.
• The upcoming explosion of video platforms should help Limelight accelerate its sales and earnings in the fourth quarter of 2019 and beyond. However, the road to that turning point looks a bit bumpy.
• The midpoint of Limelight’s full-year revenue guidance was slashed from $220 million to $205 million, reflecting a few contract signings falling later than previously expected. Adjusted full-year earnings are now seen approaching the breakeven point, compared to roughly $0.15 per share in the first-quarter’s guidance update.

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Image source: Getty Images.

What management had to say

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="In the earnings call, CFO Sajid Malhotra highlighted his company’s strong position in the video-delivery market, which looks like a market-beating niche for the foreseeable future. In particular, Limelight should be able to steal content-delivery market share from archrival Akamai Technologies, thanks to Limelight’s stronger stance in video streaming.” data-reactid=”38″>In the earnings call, CFO Sajid Malhotra highlighted his company’s strong position in the video-delivery market, which looks like a market-beating niche for the foreseeable future. In particular, Limelight should be able to steal content-delivery market share from archrival Akamai Technologies, thanks to Limelight’s stronger stance in video streaming.

Malhotra said:

I think that the video segment is growing at a much faster rate, and I think that the quality that those customers want matches up better with our capabilities. And obviously the price points for delivering quality video are higher than delivering, non-discriminate software, for example, in the middle of the night. So, we think that we are participating in the right part of the market where the growth rates are particularly high.

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.” data-reactid=”50″>John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund owns shares of Amazon and Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.

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