Limelight Networks Acquisition of Alert Logic Part 2

What is the impact to Limelight Networks (LLNW) if they acquire Alert Logic? In this post, we’ll do a deep dive discussion into that scenario. First, let’s start off by evaluating LLNW’s position in the CDN ecosystem. On the last earnings call with investors, LLNW reported flat revenue growth, and employee churn was down. In addition, the customer base was right sized. On May 6, LLNW is reporting earnings for Q1 of 2014. I don’t expect too many surprises, and revenues are likely to be flat.

State of Limelight Networks in 2015

Any CDN reporting zero growth when the entire CDN industry is growing at 12%+ annual clip is not a good sign. If LLNW reports flat growth for the next few quarters of 2014, LLNW is going to be sidelined as a CDN, never to pose a threat again to Akamai or EdgeCast. Akamai, EdgeCast, Fastly, Yottaa, Incapsula and CloudFlare are making progress developing new features, and growing monthly revenue at 10%+ annual clip at a minimum. If you add these two together, zero revenue growth for LLNW, and rapid growth for other CDNs in 2014, LLNW is simply going be left behind in the fast changing CDN industry in 2015. How can LLNW stop this from happening?

The Video Market

The solution is simple, Limelight Networks needs to make an acquisition soon, and not just any acquisition. LLNW needs to make the right acquisition. There aren’t too many options out there, so it will make the job easier. LLNW must take a risk, and make a bold acquisition that will enable it to catch up to other fast growing CDNs, and surpass them. For starters, let’s discuss what’s not the right acquisition. The entire video market is growing rapidly, and many companies are benefiting from this growth. However, the video market is crowded, with many established players. There is very little opportunity for LLNW in this category.

Brightcove is the only public OVP player in the market, and also the largest, representing more than 50% of the market share. As of late, Brightcove has been struggling. Their stock price is depressed, and they are on track to generate a little over $100M in annual revenue. Now throw in three other strong OVP players into the mix (Ooyla, Kaltura & ThePlatfom), and you have a small competitive market. There isn’t really a play here for LLNW.

Now let’s look at the OTT market. There is Netflix, Hulu, M-Go and a few other players. Delivering video for these companies has very low profit margins, sometimes amounting to a couple of cents per GB. Next, there is Verizon with FiOS, AT&T, Comcast, and other large players that are serving video content over the last mile. All these companies delivery over their own infrastructure. Finally, there is Akamai, they pretty much own the CDN video delivery segment amongst big media companies. Let’s be realistic, there is no way LLNW takes business away from from Akamai.

Limelight Networks Few Options

That leaves LLNW with very few options, actually only one viable option. What high growth market is a perfect candidate for LLNW that can leverage LLNW large global infrastructure? The security sector is the best market for a CDN right now. Today, the entire security market is in flux, where even the leaders like Symantec are struggling. In addition, FireEye and Imperva stock are down 40%+. Add to the mix that new cyber security companies are introducing technology that is much more innovative than what the big guys offer. Add all these elements together, and its the perfect combination for LLNW to enter market and capture some of this business.

Conclusion

After covering 20+ cyber security startups in the last few months, Alert Logic is the best fit for LLNW. Alert Logic is an extremely solid company, growing revenues at a 40% clip, with 2400 customers. Alert Logic offers a strong portfolio of security products that includes IDS/IPS, WAF, Log Management and more. It’s going to be a little expensive for LLNW, but we are talking about the survival and relevance of LLNW in 2015. This year is going to be a do or die year for LLNW. They might not know it, but an acquisition at this point is a must. There is nothing more that I would like to see than a strong #2 CDN contender that is generating $500M in annual revenue, and is hiring a ton of talent.  Limelight Networks Acquisition of Alert Logic Part 2