In the topsy-turvy tech market, a lot can happen in a couple of months. Since going public in June, shares of Limelight Networks
Limelight's network transfers rich online content such as games and video at high speeds. As the Q2 report shows, it's a hot segment of the Internet economy. Limelight's revenue surged 43% to $21.2 million, and it added 149 customers, for a total of 876. New clients include Viacom
Limelight announced the five-year expansion of a major contract with an as-yet-undisclosed existing customer. Since part of the company's revenue is based on future traffic, it's impossible to gauge the size of the deal. But on the conference call, Limelight's management sounded upbeat on the prospects of the contract.
The company's adjusted EBITDA fell by 22% from the previous quarter to $4.4 million in Q2. Limelight predicts that EBITDA will fall to $1 million to $2 million for Q3. To accommodate its growth, Limelight has ramped up spending on R&D, sales and marketing, and general and administrative costs -- at the cost of lower EBITDA.
Meanwhile, Limelight has suffered pricing pressure. While high-quality online video is highly popular, content providers can't seem to find ways to make money from it. So why pay high fees to Limelight?
Moreover, Limelight's main rival, Akamai Technologies
As I mentioned in a recent Fool article, Limelight's recent valuation - with an enterprise value-to-sales multiple of around 20 - seemed priced for near-perfection. While its valuation is much better now, its rivals appear to be gaining momentum, and Limelight's share price may deteriorate further. Given the sudden destruction of Limelight's stock, it'll probably take some time for investors to warm up to the company again.
Further Foolishness in focus:
Limelight competitor Akamai is a Motley Fool Rule Breakers recommendation, while Electronic Arts is a Motley Fool Stock Advisor recommendation. You can check out either newsletter absolutely free for 30 days.