Shares of Edgio (EGIO -4.26%) fell 46.5% in November 2022, according to data from S&P Global Market Intelligence. The culprit behind this drastic crash isn't hard to spot. The content delivery and edge computing company reported third-quarter results on the evening of Nov. 9. Investors were not impressed, and the stock closed 35.6% lower the next day.
Content delivery expert Limelight Networks merged with Yahoo's Edgecast division on June 16 and renamed itself Edgio. November's third-quarter report was the second business update since that game-changing transaction and the first to cover a full quarter of post-merger results.
Revenues rose 119% year over year, landing at $121 million. On the bottom line, adjusted net losses increased from $0.01 to $0.08 per diluted share. Your average analyst had expected losses of roughly $0.05 per share on sales in the neighborhood of $122 million. Looking ahead, Edgio's management set the midpoint of their fourth-quarter revenue guidance at $111.5 million, far below the $131 million analyst consensus at the time.
Edgio's modest revenue guidance was the result of macroeconomic concerns inspiring limiting the company's customers to limit their capital spending budgets. Furthermore, client churn increased, especially among smaller contracts. CFO Stephen Cumming said this increased churn is common during the integration phase of large business combinations and that both issues should be temporary.
In other words, none of the current financial challenges are terribly surprising.
"We're not seeing any headwinds there outside of what we normally expect in the industry," CEO Bob Lyons said on the earnings call.
That said, this Edgio incarnation doesn't have a long track record of guidance-beating results, and the company has a lot to prove in the next few earnings reports. As a longtime Limelight investor, I'll keep a close eye on the merged company's revenue growth and customer loyalty over the next year or two. In both cases, I'm more concerned about stability than outright growth in this early stage.