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Where Is The Light At Limelight Networks?

|Includes:GOOG, Limelight Networks, Inc. (LLNW), LVLT

The Internet is one of the largest hubs for business opportunities. The platform has been the cornerstone of many businesses and now it is actually almost impossible to imagine a business that does not rely on the Internet in one way or another. Limelight Networks, Inc. (NASDAQ: LLNW) is one of the companies that relies on the usage of Internet and cloud-based services. Limelight Networks was a content distribution network (CDN) company until about two year ago when it acquired Clickability, a web content management company. However, on December 23, the company announced the sale of that business to content management veteran Upland Software, reverting to its market leading business in CDN. In the press release, the company noted that it was refocusing it resources to an area where it felt it was stronger and able to maintain sustainable growth.

"As the Limelight Orchestrate Platform grows to support an ever-widening ecosystem of content, channels and devices, the sale of our web content management business enables us to concentrate our efforts on expanding Limelight's unique delivery optimization capabilities, where we see attractive market opportunities and enjoy a leadership position," said Robert Lento, chief executive officer of Limelight.

Over the last few quarters, Limelight Networks experienced slowdown in revenues from its content management business, and no wonder the CEO felt that Upland Software would better manage it. However, the big question is can Limelight return to profitability by concentrating on the CDN business? The content distribution market is not an easy place to put all your cards, but based on Limelight Network's experience in the business, perhaps it stands a better chance by focusing its resources in this developing market.

There are other players such as EdgeCast Networks and Level 3 Communications (NYSE: LVLT), which are looking to capitalize on the opportunity presented by the CDN market. There are also other up and coming startups like Taboola, while Google's (NASDAQ: GOOG) YouTube continues to dominate the video sharing and distribution market.

Therefore, in as much as Limelight sees light at the end of its CDN business tunnel, this does not guarantee an outright success. In fact, after dumping its content management business, chances are its revenues might take some time to get back to the level they were before the disposal of Clickability. Level 3's CDN revenues have already bested Limelight's and the foreword outlook does not seem to suggest an imminent reversal in the current status quo.

Therefore, Limelight Networks may seeing a the light in its CDN business, but in my opinion, it might take some time before it can get back to generating revenues witnessed over the last two to three years.

To cap it all, Limelight Networks is down 16 percent over the last twelve months. The good part is that the company has no debt on its balance sheet and enjoys a strong current ratio of 5.30. Its price to book value of 0.77x indicates significant undervaluation compared to its write down value. Therefore, If Limelight Networks can capitalize on what it perceives as a light for sustainable growth, then there is a lot of value in the stock. But it won't be easy.

Stocks: LLNW, GOOG, LVLT