The Real Meaning Behind Akamai, Limelight and the Writers Strike

Limelight (LLNW) put out earnings this week and once again, many analysts are unfairly comparing Limelight and Akamai (AKAM) numbers and data. Why is it that so many analysts and reporters are willing to make very specific statements about CDN providers, but do so using general terms? Sounds confusing just saying it, but I'll prove my point in a second.

Yes, there is no question that Limelight did not show revenue growth from quarter to quarter and its yearly revenue guidance of ($136M) is a lot less than the pre IPO revenue guidance they gave ($179.2) for 2008. Investors want to see revenue growth quarter to quarter, but to me, who has no vested interest in either Limelight or Akamai's stock, the number of net new customers by Limelight each quarter continues to grow very well. Continued, long term, steady growth of customers is a good benchmark.

Yes, being profitable is important, I get that, but this is not a dash to the finish line. This market is only just getting started and for Limelight, they are in this for the long term. And even without revenue growth quarter to quarter, the next closest competitor to Limelight in terms of CDN revenue for the U.S. has less than 25% of Limelight's revenue, so its not like anyone is bumping them from the number two spot.

I find it interesting that no one is saying that Akamai only had 19 net new customer for the quarter and Limelight had 170? Why is no one comparing that and saying look how good Limelight is doing over Akamai? Because it is not a fair comparison. But that does not stop analysts and others from comparing Limelight's 15% decrease in the monthly average customer revenue, versus 20% increase by Akamai. That's suppose to be a fair comparison?

What percentage of Akamai's revenue came from CDN services last quarter? How many new CDN customers did Akamai sign up? We don't know, as Akamai won't break out those numbers. But did anyone stop to think that Akamai's CDN business could have been flat for the quarter as well, but all of the other higher grossing products they have made up for it?

Limelight lives or dies by two things. Its CDN product, specifically for video delivery and the media and entertainment customers which is its core vertical. Akamai offers multiple products not related to video and targets other verticals like enterprise and government. So when reporting numbers, we know exactly what product or service customers are buying. With Akamai, we don't.

Now some will say that Akamai stated on their call that a) the writers strike did not affect their business and b) they saw significant seasonal strength in media and entertainment. I agree with both of those statements, BUT, they are general statements. Did the writers strike affect Akamai? Absolutely. Doesn't Akamai have just as many if not more major broadcasters on their network than Limelight?

While it did affect them, Akamai answered the question correctly when they said that it did not affect their business. Since Akamai is diversified in their product line, the writers strike had little impact on their revenue overall. But is that then fair to compare that to Limelight, since they don't offer those other products? No.

And as for Akamai's statement that they "saw significant seasonal strength in media and entertainment..." I don't doubt that. But for what product? Why does everyone assume that just because it is a media and entertainment customer, that means they are doing video? Media and entertainment customers need other services that Akamai offers as well. Why doesn't anyone question the general statements many companies put out and ask for the data behind it?

And before anyone writes in and says I am taking sides or an defending Limelight, I'm not. Yes, Limelight is a sponsor of the blog, but Akamai has also nicely been a sponsor of the blog on multiple occasions. If the roles were reversed, I would still be making the point. It does not matter who the company is to me, it's the principle of how data is reported and conveyed to the industry and the market.

I probably saw over two dozen articles yesterday alone about Limelight's earnings. One said, "...it’s at least as likely that customers are pulling away from Limelight because of the costly patent lawsuits brought by Akamai and Level 3 (LVLT)..." Really? That's a very specific statement, yet made in a general term with no details. Likely based on what? Customers you spoke to? Something Limelight said? Something you can point to? None of the above. If anything, Limelight's continued growth of net new customers each quarter says the opposite.

No, I don't own any shares of Akamai or Limelight. I have never bought, sold or traded their stock ever. And I know some investors are going to say that I am not a financial analyst so what do I know. That may be. But don't you think that is exactly what is needed in today's market? People who don't have any vested interest in public companies questioning what they say and asking for details on the products that make up the numbers?

Anyone can look at a spreadsheet and P&L and all of that. But all of those numbers come from the products and every time I listen to a earnings call, nearly all of the questions are about ARPU and lots of financial data. That data comes from the products and services being sold. Why not ask more about them, so you can see how the numbers evolved into what they are?

I'm sure some will say, why the hell do I care about this so much? Why am I always ranting about apples to apples comparison when I have no vested interest in the stock of any of these companies? The answer is simple. I want this industry to grow. I have been in this market for almost 15 years and I want to see it grow for another 15.

In order to do this education, data, metrics and examples are the best way that is going to happen. Maybe I am a fool for wanting companies and Wall Street to be more straight forward with info, ask the right questions and provide real data. I know when it comes down to it, it's all about politics and the companies decide what data they put out in the market and what "perception" they want the industry to have.

My relative Sam Rayburn, former Speaker of the House said it best with the quote of "you can never remove politics from politics". That's what this industry feels like to me sometimes, politics.

Comments

[TJH]

What I found unnerving was the release and CC did not answer key questions:
1.How big are the new accounts?
2.How long are the contracts?
3.What is the churn rate? a sign of customer satisfaction
4.What is the average ARPU and has it grown? adding new products and selling existing customers these products- a sign of customer satisfaction and innovation.
Management did not address these key metrics- probably because GS still owns 36% of the company and needs to unload these shares.

[MSV]

I hardly find any information about the both the lawsuits. The akamai ltrial has been going on in the Mass Fed Court for the past 2 weeks.

Do you know anything about how it is going ? 2 weeks for jury patent trail is long I think.

What are the chances of LLNW ? What will be the impact ?