What happened
Shares of Limelight Networks (LLNW +0.00%) sank as much as 15.5% by midday Thursday after the company released a filing with the U.S. Securities and Exchange Commission (SEC). The filing outlined a recent legal complaint from a shareholder and the loss of a large customer at Edgecast, a company that Limelight Networks is set to acquire shortly. These negative pieces of information caused shareholders to sell the stock.
As of 12:41 p.m. ET, Limelight Networks stock is down 13.2%.
Image source: Getty Images.
So what
In a Schedule 14A filing with the SEC on June 1, Limelight Networks released important information for its shareholders. First, it said a group of shareholders was suing Limelight over its proxy statement filed on May 4, alleging that the company failed to notify shareholders of material information in the document. It is unclear what that material information was, but a lawsuit against a company is never a good thing, because even if Limelight is proven innocent, it will still have to pay a bunch of legal expenses.
Investors should pay attention to this lawsuit, but the most important piece of information in the SEC filing was an update on the large Edgecast acquisition that is supposed to close soon. Edgecast is another edge services and content delivery platform, and the combined companies had revenue of $500 million in 2021. On May 14, Edgecast informed Limelight that it failed to renew a customer that generated $25.8 million in revenue for it last year. This would equate to over 5% of the combined company's revenue in 2021, so you can see why investors were so pessimistic about the news.
OTC: LLNW
Key Data Points
Now what
Things don't seem to be starting out well for Limelight Networks and Edgecast. And before this merger, it's not like Limelight was setting the world on fire, either. Its revenue is up only 26% in total over the past 10 years, and the company has never generated consistent operating income. With all the other opportunities out there in this down market, there's no need for investors to buy the dip on Limelight stock right now.
