Limelight Networks (LLNW) is ticking higher today (+4%) after providing some good guidance this morning for 2018. With it being a slow news day, we wanted to take a look at LLNW and provide some color. In case you're not familiar, LLNW operates what's known as a Content Delivery Network (CDN), similar to Akamai and Level 3. LLNW has over 750 customers, including many widely recognized names in online video, digital music, news media, games, rich media applications, and software delivery.
LLNW operates what it calls the Limelight Orchestrate Platform. This is a suite of offerings that enable the management and optimization of a customer's digital presence, including website, mobile, social media, gaming, large screen, and other digital channels. Services include content delivery, video content management, website and web application acceleration, website and content security, and cloud storage services. It also offers professional services, such as transit and rack space services.
LLNW is benefitting from the sizeable increase in online video viewership, ranging from computers and tablets to smart phones and streaming devices. Online video is rapidly growing towards becoming a primary method by which users consume video content.
Customers have been forced to increase quality to provide a "broadcast-like" experience such as with 4K resolution. Consumers are also increasingly purchasing movies, music, games etc. which carry larger download sizes. Some popular games have topped 50 GBs in size. This causes strain on the Internet's infrastructure. As such, more and more customers are seeking to avoid congestion, latency etc. As a result, more customers are turning to CDNs like LLNW to insure downloads go more smoothly.
The stock jumped in late October on a strong Q3 report. Results that showed sequential improvements despite Q3 being a seasonally weak quarter. It reported a profit even as a small loss was expected. However, the stock sold off in late November after the company announced a 15 mln share secondary offering by selling stockholders affiliated with Goldman Sachs.
Turning to today's guidance, LLNW expects revenue of $196-200 mln and non-GAAP EPS of $0.11-0.15. The revenue guidance is above market expectations while the mid-point of the EPS guidance was also above market expectations. Adjusted EBITDA is expected to be $32-36 mln.
LLNW also noted that its 2017 results have been at the high end of internal expectations at the end of three quarters. LLNW says that, in addition to structural improvements, but not evident in this guidance are the investments it's making to organically build its edge-cloud/edge-compute business. Based on early interest, the company is very excited about this opportunity.
In sum, the public offering in late November sort of took the wind out of the sails of this stock, which had been climbing nicely from $3 in late June to $4 in late September to $6 by mid-November. The offering caused the stock to fall back below $5. From a broader perspective, LLNW believes it's taking market share. Also, pricing discipline and operational efficiencies are driving "massive" gains in gross margin (Q3 improved to 48.4% from 41.1% last year). The company sees its 2017 operating performance as being its best ever and the plan is to improve on that in 2018.