Investors of Limelight Networks (EGIO 0.28%), a content delivery services company, pushed its share price up 13% today after Limelight said that it was buying an edge computing company from Yahoo! and that it would rebrand its name to Edgio.
Making acquisitions is an ordinary move for many publicly traded companies, but investors should know that Limelight's purchase is a pretty significant one for the edge computing company in terms of its size, opportunity, and future.
And that's why investors' optimism today appears to be on point. Let's take a quick look as to why.
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Limelight is purchasing Yahoo!'s Edgecast company for 72.2 million shares of common stock. Those shares will give Yahoo! nearly 32% ownership of the new combined company, which will be called Edgio.
That's a significant deal, but what does Limelight get out of it? Here are a few of the highlights:
- The purchase will expand Limelight's total addressable market from $12 billion to $40 billion, the company says.
- The combination of the two companies is expected to "more than double" Limelight's current annual revenue, expand its gross margins, and increase recurring revenue growth, according to a press release.
- Limelight says that Edgecast's cloud security services will give the company projected revenue of more than $100 million in the security segment.
Limelight Networks said that the acquisition will also expand its customer base, diversify its revenue, and create annual run-rate cost synergies of $50 million.
When you combine all of these things together -- particularly the doubling of the company's revenue and its expanded total addressable market -- it becomes pretty clear why investors were right to be so optimistic about today's acquisition.
One thing investors should look for in the coming quarters is whether or not some of management's estimates actually pan out.
Companies can sometimes be too optimistic about the benefits of an acquisition, but in this case, it appears that Limelight investors could have much more to look forward to with this purchase.
