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Limelight Networks Is Not a Buy at Current Levels After a Weak Earnings Report

June 06, 2014 | About:
jaggom

jaggom

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Limelight Networks (LLNW) reported weak results for the quarter as its revenue fell from the year-ago period. However, after Akamai Technologies (AKAM) reported some solid numbers for the quarter, the same was expected from Limelight as well. But Limelight had various issues, which severely affected its results.

Weakness All Around

The weakness was mainly on account of customer churns and high customer acquisition costs. But management is determined to turnaround its present situation. In fact, it has already taken various initiatives in this direction. Consequently, it reported a smaller than expected loss for the quarter.

Management is working hard to improve its present situation. It has expanded its product mix, which could help the company gain more customers. In addition, Limelight is expecting to gain traction across all its offerings by providing a more compelling product suite. The company is focusing on product development to deliver better results to customers, which will ultimately help it improve its situation in the days ahead.

Improvements

Customer churns are a matter of concern for the company and to improve this situation, it is focusing on its operational efficiencies. It has made considerable improvement in this direction and reduced one-third of the churns in the second half of last year. In addition, Limelight also observed high employee turnover. But, management worked hard to improve the employment environment. As a result, it 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 improved its productivity by shifting some of its development capacities to lower cost geographies. And to improve customer satisfaction, it has developed a new customer service platform that will unify ticketing, automated communications, build an enterprise knowledge base, and drive efficiency.

For the current year, the company is focused on improving its cost efficiencies along with delivering new software, features, and functionality. To reduce inefficiencies in the business model, the company is moving to an automated environment. Some of the features it plans to introduce include enhancing adapted format streaming for mobile devices, updated digital rights management, and instant purge capabilities globally to provide better services to customers.

Concerns

Although management is positive about its prospects, but it seems to be a tough road ahead for the company. Last year, Limelight had invested in its infrastructure to build its network in order to bag the order from Netflix, and was successful in achieving it. But to Limelight’s disappointment, Netflix, which was its largest customer, is going to move away from it in the middle of the year. However, management at Limelight believes that organic and new customer growth will offset the decline due to Netflix and lead to revenue growth this fiscal year.

Limelight is not the only one to face this type of situation. Its rival Akamai is also in a similar soup with its biggest customer dropping out. According to reports, Apple will be building its own content delivery network and will not place any more orders with Akamai. But Akamai’s management had a similar response as Limelight.

They stated that it is in a good position to weather such a storm since it has a broad client base. Its client base includes AT&T, Orange, Swisscom, Korea Telecom, and Türk Telekom.

Conclusion

Limelight is not in a good position as Akamai. Although Limelight is trying hard to turnaround its situation and has made some progress, the loss of Netflix could weigh on its results. Considering the present situation, it will be prudent for investors to avoid Limelight and wait on the sidelines. Although its prospects seem to be good, but we can get a better entry point in the future.


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