Limelight Networks, Inc.: Down 47% from High; Time to Take a Look!

LLNW StockLimelight Networks, Inc. Playing the Future of Digital Delivery

As the demand for digital content delivery rises, so will the need for securing the content in an era when cybersecurity threats continue to rise. An intriguing small-cap provider of high-speed private global networks that’s looking to benefit from this is Limelight Networks, Inc. (NASDAQ:LLNW).

The company offers a viable private option for digital content. Its clients include media, music, movie, gaming, software, social media, enterprise, technology, and government companies.

Limelight Networks stock traded as high as $8.19 on July 2, staging an impressive rally from $3.51 on March 17.

But for those traders who missed the initial surge in LLNW stock, we saw another opportunity surface on October 23, when Limelight Networks stock sold off by 28% to the $4.00 level.

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Chart courtesy of StockCharts.com

Triggering the selling of LLNW stock was the company’s $0.03 earnings-per-share (EPS) shortfall in the third quarter. While disappointing, it’s not a surprise with companies of this scale, as Limelight Networks, Inc. is still in its growth phase.

Limelight Networks did manage to increase its revenues by around 15% year-over year, to a slightly better-than-expected $59.2 million. The company has beaten the consensus revenues estimates in four straight quarters.

I’m not concerned about the miss for now, especially after the sell-off.

Why LLNW Stock Is Worth a Look

Limelight Networks’ revenues increased in four of the last five years, with a small 1.6% decline in 2016. The company has increased its revenues in three consecutive years, to a record $200.6 million in 2019.

Fiscal Year Revenues (Millions) Growth
2015 $170.9 5.3%
2016 $168.2 -1.6%
2017 $184.4 9.6%
2018 $195.7 6.1%
2019 $200.6 2.5%

(Source: “Limelight Networks Inc.” MarketWatch, last accessed October 23, 2020.)

Looking forward, there are encouraging signs. Analysts estimate that the company will ramp up its revenues by 17.9% to $236.6 million this year, and 9.7% to $259.5 million in 2021. (Source: “Limelight Networks, Inc. (LLNW),” Yahoo! Finance, last accessed October 23, 2020.)

Limelight Networks has also been generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA), which is good for a small company. There is some concern, however, as EBITDA fell in 2018 and 2019.

Fiscal Year EBITDA (Millions) Growth
2015 -$4.8 26.1%
2016 $2.1 142.7%
2017 $17.9 774.1%
2018 $16.7 -7.3%
2019 $4.3 -73.9%

(Source: MarketWatch, op. cit.)

As far as profitability goes, Limelight Networks is not at the stage where it has been consistently producing positive earnings per share (EPS) on a generally accepted accounting principles (GAAP) and adjusted basis. Again, not a surprise, given the company’s stage of development.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.24 4.0%
2016 -$0.71 -195.8%
2017 -$0.07 90.1%
2018 $0.08 217.1%
2019 -$0.14 -257.6%

(Source: MarketWatch, op. cit.)

A positive sign is that Limelight Networks, Inc. is expected to report an adjusted $0.08 per diluted share this year and $0.13 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Limelight Networks has still largely been reporting negative free cash flow, but this is expected as the company spends capital on its growth.

Fiscal Year Free Cash Flow (Millions) Growth
2015 -$18.3 -0.9%
2016 -$3.0 83.6%
2017 -$15.2 -406.7%
2018 $3.6 123.7%
2019 -$32.9 -1013.2%

(Source: MarketWatch, op. cit.)

Analyst Take

I view the sell-off in Limelight Networks stock as an aggressive opportunity to either enter an initial position or add to an existing position.

The fact that Limelight Networks, Inc. has been ramping up its revenues while moving toward adjusted profitability is bullish for LLNW stock.