You may have noticed shares of Level 3 Communications
Rayburn reached his verdict by paying attention to earnings calls, where Limelight boasted of renewing its Netflix contract for another three years and Level 3 reported building out its content delivery network in support of a large customer -- presumably Netflix. Akamai is not making any such claims; at best, the company would keep its existing arrangement alive and share the Netflix account with its rivals, and at worst, Limelight and Level 3 could be running away with this high-profile account altogether.
If Rayburn's reasoning proves correct -- and I don't see any major flaws in his logic -- it would certainly be a bit of a bummer for Akamai and good news for the others. But is it market-moving news that should be capable of adding more than $100 million to Limelight's market cap, for example? Not on your life.
By Dan's own calculations, Akamai collects no more than $15 million of revenue from its 51% share of the Netflix opportunity. While it is a low-cost bid and the others may charge higher prices, we're talking about an annual sales account of $40 million or less, adding all three service providers together. Giving the entire account to Limelight, which sports $144 million in trailing sales, would move that needle significantly -- but that's not even close to what's happening here. It's even less of an event for Level 3 and its $2.75 billion in TTM sales, yet the mere suggestion of winning the Netflix account added 15% to Level 3's market cap.
A pallet of chill pills is in order, because these market moves don't have any basis in even extreme version of the suggested new reality. Dan may be right about the account move, but the market is jumping to some crazy conclusions of its own. This would not be a good day to buy stock in either Limelight or Level 3, folks.