Is Limelight Networks Spread Too Thin

Limelight Networks (LLNW) offers CDN services, CMS, OVP, instructor-led classes and staff augmentation. At their core, they’re overwhelmingly a CDN. They have POPs, routers, thousands of servers, multi-carrier connectivity, caching software, and so on.

The reason they’ve broadened their service portfolio is to diversify from their reliance on commoditized CDN services. LLNW’s new strategy is different compared to all other CDNs. According to their 10-Q, in Sept 2013, their quarterly sales were worth $26.9M of CDN services and $15.6M of Value Added Services (OVP, CMS, Training, etc.) for a total of $42M. LLNW market cap is $190M.

In Sept 2013, Brightcove generated $28M in quarterly sales. Their market cap is $407M. If LLNW matched Brightcove’s revenue, their market cap would rise significantly. Unlikely. Perhaps the stock market doesn’t have any faith in LLNW stock anymore. The only way LLNW can change that perception is to show dramatic top line growth.

Limelight’s Service Offering
Can LLNW dramatically increase top line growth with its current service offering? Or is LLNW spread too thin focusing on too many areas including CMS, OVP and CDN? The answer is in their 10-Q. LLNW has been losing ground in the CDN space for a while now. According to their 10-Q, LLNW had 1,341 customers ending Sept 2013, compared to 1,493 customers on Sept 2012. That is a net loss of 152 customers over a 12-month period.

The 10-Q goes on to say that LLNW was selective, and only accepted profitable business, that’s the reason they lost customers. Whether that is a good strategy or not is up to debate. In the CDN market, a $300/month account can be profitable. It depends on many factors including the support system. Also keep in mind that a $300/month account can turn into the next Pinterest, Linkedin, Twitter, or Snapchat. A CDN can’t simply walk away from that business. Once a startup signs with a CDN, they are most likely to stay with that CDN for many years.

Maybe it’s time that LLNW follows in the footsteps of Akamai, and gets back to its roots by focusing on their core strengths, CDN services and cloud security.