- LLNW reported strong 2Q20 results, including record revenues of $58.5MM up 28% YoY, adjusted EBITDA of $9.7MM and adjusted EPS of $0.03.
- Record traffic was driven by pandemic induced stay at home OTT video streaming, gaming and digital media. Edge compute is gaining traction for this stay at home stock.
- Recent launches by HBO Max, Peacock (Comcast/NBC), and rapid growth at other large media customers boosted results. The Company's industry leading low latency high-speed network is winning against the competition.
- Post earnings, LLNW announced a $110MM 3.5% 2025 convertible debt offering @ $8.53, expected to close Monday 07-27-2020, which boosts the balance sheet and possibly funds M&A but caused the stock to sell-off.
- We have updated our valuation analysis for the strong report, the convertible financing, and raised guidance including 15%+ YoY growth into 2021. Our sole issue with LLNW was high A/R growth in 2Q20 of $10MM QoQ well above the $1.7MM sequential revenue growth. Management indicated that $15MM of A/R has already been collected in July from customers LLNW "worked with" during the pandemic melee this Spring. We're willing to give LLNW the benefit of the doubt, since 80% of the Company's business comes from a dozen or so large customers suggesting credit risk is minimal. We view recent weakness as an opportunity and reiterate our STRONG BUY recommendation; adjusting our near-term price target to $16, a $2.4BN EV or 10x 2020E revenues of $240MM. This level is still a material discount to other CDN/edge computer providers FSLY, NET and AKAM trading at 20x-25x sales. If LLNW remains at today's 3.4x sales, we predict the Company will be targeted for a takeout by its peers, a global network operator like CTL (Level 3), or some major corporate entity that can leverage its infrastructure for its own portfolio (e.g., AMZN, APPL, GOOG, MSFT).
LLNW 2Q20 Earnings Report
LLNW 2Q20 Investor Call
Raised 2020 Guidance (again):
|GAAP Basic EPS||$(0.10) to b/e||$(0.10) to b/e||$(0.10) to b/e||($0.14)|
|Non-GAAP EPS||b/e to $0.10||b/e to $0.10||b/e to $0.10||($0.02)|
LLNW Cap Table @ $6.11 (07-24-2020)
LLNW Cap Table @ 10x Sales (50% Discount To Comps FSLY NET AKAM)
CDN Head's Up Comparison - LLNW v FSLY
Analyst's Disclosure: I am/we are long LLNW.
We intend to provide additional commentary in our ongoing coverage of LLNW.
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