Level 3 Can Recast Itself in a New Image

When your old business methods stop working, you can either fix them or find something new to sell. Communications service provider Level 3 Networks (Nasdaq: LVLT  ) has tried and largely failed to breathe new life into its stagnant data pipeline operations, but it's having better luck with some new initiatives.

In the just-reported third quarter, Level 3 saw sales stay roughly flat on a quarter-to-quarter and year-over-year basis at $912 million. The company is investing heavily in expanding its content delivery network (CDN) services, because that's where the growth is. For proof of this, you can look at the sales growth rates and income margins of pure-play CDN providers Akamai Technologies (Nasdaq: AKAM  ) and Limelight Networks (Nasdaq: LLNW  ) , then compare them to more traditional backbone runners like Level 3 or Global Crossing (Nasdaq: GLBC  ) . The CDN guys will come out on top in nearly every growth contest; Limelight is still building up to the critical mass needed to turn a reliable profit, but Akamai crushes regular networking profits on every level.

So it's no wonder that Level 3 wants a little more of that hot action. The company isn't giving up entirely on selling backbone networks and is in fact bragging about how it connects the retail outlets of fast-growing coffeehouse chain Green Mountain Coffee Roasters (Nasdaq: GMCR  ) across the country as an example of doing those services right. Keeping up with that company's growing needs is a nice feather in Level 3's hat.

But the faster Level 3 can become a content delivery powerhouse, the better. Being one of three CDN providers (and you already know the other two) to serve up movie streams for digital movie maven Netflix (Nasdaq: NFLX  ) is a good start, but Level 3 clearly can, wants to, and will do more.

Follow Level 3's turnaround and transformation story by adding the stock to your watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Akamai Technologies and Green Mountain Coffee Roasters are Motley Fool Rule Breakers choices. Netflix is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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