What happened
Shares of Limelight Networks (LLNW +0.00%) rose 75.3% in 2016, according to data from S&P Global Market Intelligence.
So what
The content delivery network operator enjoyed a revival in 2016. The ever-volatile stock took a hit in July, as a patent dispute with rival Akamai Technologies (AKAM +2.41%) reached its end after eight years of court proceedings and appeals. The final settlement punched a hole in Limelight's second-quarter earnings, but also released $63 million of restricted cash back onto the company's balance sheet.
With the Akamai cloud no longer hanging ominously over Limelight's proverbial head, the company is absorbing some of the low-margin content delivery business that Akamai is leaving behind. Management spent the next six months paying down debt and improving profit margin, and investors took note of these improvements. The year was finished off with an optimistic guidance report in December.
Image source: Getty Images.
Now what
That rosy guidance update set up an adjusted earnings target at roughly $0.04 per share for fiscal year 2017. By comparison, Limelight's earnings over the last four quarters currently add up to an adjusted net loss of $0.01 per share.
Commenting on the third-quarter results, Limelight CEO Robert Lento painted a cheerful picture of the road ahead:
"With a strong financial foundation in place, we are focused on driving profitable revenue growth, and we expect to grow the business in the fourth quarter and into 2017, even as we further expand margins," Lento said.
So far, so good. But I would urge Limelight investors to take a deeper look at how this company seems content to pick up the crumbs Akamai is leaving behind on its way into the data security market. Sure, that's always a place for providers of commodity services -- but the prospects for a high-growth future look dim. Limelight launched its first serious security product in September and has a lot of catching up to do in that far more promising market.
