What happened
Shares of Limelight Networks (EGIO 10.27%) took a steep plunge today, on the heels of the early morning's first-quarter earnings report. The stock was down as much as 28.8% at 12:15 p.m. ET on very heavy trading volume.
So what
Curiously, Limelight's results met or exceeded Wall Street's expectations. Top-line sales rose 13% year over year, landing at $58 million. On the bottom line, adjusted net losses improved from $0.09 per share in the year-ago period to $0.04 per share in 2022. The net loss was right in line with the Street's consensus estimate, and your average analyst would have settled for revenue near $56.3 million.
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Management also held its full-year revenue guidance steady, centered at $245 million. The current analyst target for this period stands at $243 million, so that was another solid showing.
Now what
If everything is fine, why did the stock take a nosedive? Analysts and investors may have set their full-year targets at a certain level, but they also expected a bullish update in this report. Limelight is acquiring the Edgecast video-sharing service from Verizon's (NYSE: VZ) Yahoo! division. The buyout is expected to close in the next month or two, and Limelight will then change its name to Edgio with a revamped corporate structure. That's a game-changing move, and some investors were hoping for an equally sensational guidance lift.
But Limelight's management kept its cards close to the vest, opting to maintain its targets as if the Edgecast transaction weren't in the cards. And the very bottom of today's plunging stock price came when CEO Bob Lyons said that there will be "a major reset of guidance" when the merger is completed.
So the stock took a haircut based on the lack of optimistic forecasts for the upcoming Edgio era. As a Limelight shareholder myself, I prefer a slower but more accurate approach to the premature and probably faulty guidance boosts the market makers appear to have expected today. Successful investing is a marathon, not a sprint.
