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Wait Before You Buy Limelight Networks
Posted by: jaggom (IP Logged)
Date: May 9, 2014 11:48AM

After outstanding performance of Akamai Technologies (AKAM) that released its results in February 2014 for its first quarter, it was time for its fellow competitor, cloud services provider Limelight Networks (LLNW), to declare its results. However, it was seen that Limelight’s results were nowhere near Akamai’s as the content delivery service provider’s revenue fell year-over-year.

A Weak Performance but Trying to Get Better

Limelight put up a weak performance due to customer churn and high customer acquisition costs. However, Limelight is undergoing a turnaround phase for the last year, and it was able to deliver a smaller than expected loss in the quarter. Besides, Limelight’s loss declined slightly to $5.1 million from last year’s $5.6 million.

Also, Limelight is practicing various strategic initiatives to bring the company to profitability and is addressing various issues that it faces like customer churn. Moreover, the company is aggressively making improvements such as expanding its product suite in order to gain more customers. In addition, Limelight anticipates gaining traction across all its solutions by providing a more compelling product suite to its customers worldwide. Also, its increased concentration on product management and software development will certainly solidify its solutions.

Strategies Ahead

Limelight is determined to increase its operational efficiencies that could address the problem of customer churn in the coming months. It has made tremendous improvements on this issue and reduced one-third of the churn in the second half of the last year. In addition, the company is working upon improving the employment environment in order to reduce employee turnover, which has led to positive results for the company as Limelight was able to bring down employee turnover from 20% in the first half of the previous year to single digits in the fourth quarter.

Limelight also aims at improving productivity as it moves some of its development capabilities to lower cost geographies. It has also developed a better customer service platform that provides unified ticketing, automated communications, builds and enterprise knowledge base and drives efficiency.

Apart from this, the company is also focusing on improving cost efficiencies and delivering new software, features and functionality. Limelight plans to introduce features such as enhancing adapted format streaming for mobile devices, updated digital rights management, and instant purge capabilities globally to provide better services to customers.

Some Issues

Limelight will face a tough time ahead as its largest customer, Netflix (NFLX), is separating from its platform in the middle of the year. Limelight had invested heavily to build its networks in order to support Netflix, but last year, the online media streaming giant announced that it is building Open Connect, its own content delivery network.

However, Limelight is expected to benefit from its organic and new customer growth that will certainly offset the decline at Netflix and lead to revenue growth this fiscal year. This is identical to what peer Akamai said when it released earnings in February.

Apple is one of the biggest customers for Akamai but there are some reports that state that Apple will be building its own content delivery network. However, Akamai believes that it is in a good position to weather such a storm since it has a broad client base. Akamai is counting on leading carriers such as AT&T, Orange, Swisscom, Korea Telecom and Türk Telekom as clients and recently entered into an agreement with Qualcomm to provide 4K videos to customers.

Conclusion

Limelight has had a tough time but the company is trying to turn around its business and has made some impressive progress. However, the loss of Netflix will be a concern and could weigh on the results. Hence, in times of such uncertainty, I think it will be better to wait on the sidelines and see how much effect Netflix’s loss has on the company. There’s no doubt that Limelight’s other moves are interesting, but investors can get a better point of entry if they wait.



Stocks Discussed: LLNW, AKAM, NFLX,
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