What happened
Shares of Limelight Networks (LLNW +0.00%) sank 30% this week, according to S&P Global Market Intelligence. The content delivery service and edge provider posted disappointing Q1 earnings, so investors decided to sell off the stock. Shares were down as much as 33.8% this week on the news.
OTC: LLNW
Key Data Points
So what
On April 28, Limelight Networks announced its earnings results for the first three months of 2022. Revenue was up 13% year over year to $58 million, beating analyst expectations for the period. However, it reported a generally accepted accounting principles (GAAP) loss of $19.2 million, or $0.14 per share, which was significantly worse than analyst expectations for the period. Without a fast-growing top line and such large net losses, it is no wonder Limelight's stock has been down over 30% in the last few trading days.
Image source: Getty Images.
However, things aren't all bad for the company. Nineteen out of its 20 top customers grew revenue by more than 20% in the period, which indicates that overall revenue growth might pick up soon. Limelight provides valuable technology to media companies trying to stream live video around the world, including networks like the BBC and AMC Networks. It is vital for these companies to use an edge network and content delivery service like Limelight to make sure their customers have high-quality video feeds.
For the second quarter, Limelight is guiding for $240 million to $250 million in revenue and continued GAAP net losses. With a market that is not enamored with companies spending up to grow anymore, investors were likely not pleased with this news.
Now what
In the next few months, Limelight is supposed to close on a transformational deal to acquire Edgecast, one of its competitors and a subsidiary of Yahoo. It is an all-stock deal that, at the time, valued Edgecast at $300 million, but with Limelight's stock down 30% will be worth a lot less. When the deal closes, Yahoo and its investors -- the Apollo Group and Verizon Communications -- will own 31.9% of the combined business.
If you're thinking of investing in Limelight Networks, you not only need to consider its own business but also the Edgecast business you will own at some point over the next few months. Limelight is not profitable, even though it has been public for 15 years. With Edgecast in the fold, will that change? Or is this just another unprofitable business coming into the fold? Time will tell, but it is a question you need to ask yourself before buying shares of this stock.
