Limelight Outlook Won't Doom CDNs

Limelight blamed higher costs and competitive pressures for its larger-than-expected second-quarter loss. But the company's softer third-quarter outlook and Google's integration of YouTube only added to the pain.

Shares of Limelight fell $5.81 (39.26%) to $8.99 in trading Thursday. Limelight expects a loss of 4 cents to 6 cents a share, excluding certain items. Analysts, according to Reuters Research , were looking for the company to lose only about a penny a share next quarter.

Morgan Stanley analyst Peter Kuper says decreased revenues and earnings could be due to increasing competition from other players in the segment, as well as the number of customers that are moving their content delivery business in-house. One example is YouTube Inc. , which had been a large Limelight customer, but now serves most of its content in-house since being acquired by Google (Nasdaq: GOOG).

There was some positive news in the quarter, as Limelight added a record 149 new customers, bringing its total to 876 by the end of the quarter. Limelight also claimed record booking levels that were double those from the second quarter 2006.

Limelight isn't the only content delivery network (CDN) facing Wall Street's wrath in recent months. Main competitor Akamai Technologies Inc. (Nasdaq: AKAM) has seen its shares fall approximately 25 percent since it reported earnings that were only in line with analyst expectations. (See Analysts: Akamai Was Too High and Akamai Reports Q2.)

Analysts say that despite what investors see as disappointing results from the top two content delivery players, the CDN market remains strong.

Merriman Curhan Ford & Co. analyst Colby Synesael says the correction in Limelight and Akamai shares is appropriate, but he believes "they are still fundamentally good companies. The fundamentals of the CDN space are still very strong."

Morgan Stanley's Kuper says Limelight's stock might have "gotten ahead of itself," but "there's still some positive trends for the overall CDN industry."

— Ryan Lawler, Reporter, Light Reading

Be the first to post a comment regarding this story.
Sign In