Saturday, April 4, 2020

A Current AIM Small Cap Equity Holding: Limelight Networks, Inc. (LLNW, $4.37): “Green Light for Limelight”

Limelight Networks, Inc. (LLNW, $4.37): “Green Light for Limelight”
By: Nicholas Rohrer, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
  • Limelight Networks, Inc. (NASDAQ:LLNW) provides content delivery network services. Products include digital content and video delivery, cloud security, edge computing, origin storage and support services. The company’s solutions include real-time streaming, file distribution, live video and video on-demand.
  • 4Q19 was the strongest quarter on record for LLNW, as quarterly revenue tallied $60.1 million, up 37% YoY. Accelerated customer acquisition and record low levels of customer churn helped drive these results.
  • LLNW plans to add 30 terabits per second of capacity in 2020 to capitalize on and continue the momentum of 2019. Management offered FY20 revenue guidance of $223 million to $235 million.
  • Secular tailwinds in online video and gaming have helped LLNW weather the COVID-19 storm better than most.
Key points:
LLNW reported a strong finish to 4Q19 and FY19 as revenue and EPS both beat consensus. 4Q19 revenue came in at $60.1 million, up 37% YoY and was the highest quarterly revenue ever. Adjusted EBITDA was a record $11.4 million, more than double 4Q18. FY19 revenues summed $200.6 million, up 3% YoY, and net loss totaled $16 million. These results were driven by accelerated customer acquisition, up 20% YoY, and record low levels of customer churn. Average revenue per customer is now over $100,000, up from $67,000 a year ago. Additionally, traffic levels set new records each quarter throughout 2019, this momentum is expected to continue into 2020. Management offered FY20 revenue guidance of $223 million to $235 million.
4Q19 saw the successful launches of multiple live and on-demand over-the-top (OTT) platforms by some of the largest media companies in the world, Disney and Apple. Additionally, Limelight supported Amazon’s streaming of the English Premier League, the first time a major sporting event was available exclusively through internet streaming devices. Aside from the OTT successes, edge services saw uptick in revenue contributions and are expected to continue improving performance in 2020.
In 2020, Limelight plans a second major release building on its sub-second global real-time streaming solutions. Increasing demand for edge functions and additional OTT launches such as NBC’s Peacock and HBO Max will continue to drive revenues in 2020. Limelight doubled its capacity in 2019 to over 60 terabits per second, and plans to add at least another 30 terabits per second in 2020. This increased capacity will help Limelight meet its increasing demand.
Limelight’s State of Online Gaming 2020 and State of Online Video 2019 research reports show that binge-gaming and binge-watching are both on the rise. Global binge-gaming has reached record high average durations at over 4.5 hours. Similarly, as we continue to see the shift from broadcast to video on-demand, binge-watching duration is nearing 3 hours on average. As many countries begin to quarantine in response to the COVID-19 pandemic, we can expect these numbers to rise throughout 2020.

What has the stock done lately?
COVID-19 has taken a significant toll on the markets and we may still be in the early stages of the pullback. However, Limelight Networks has fared better than most throughout this volatile market. LLNW hit a 52-week high of $6.07 on February 20, 2020. As of March 20, 2020, LLNW is trading around $4.37, a drop of 28%. Over the same period, the Russell 2000 Index is down over 37%.

Past Year Performance:
LLNW had a phenomenal FY19 which was directly reflected in the stock’s price chart. Over the last year, LLNW is up 49.66%, compared to the Russell 2000 index which is down 32.67%. The 52-week high of $6.07 was reached on February 20, 2020, up 175% from its 52-week low of $2.21 on July 23, 2019.

 Source: FactSet

My Takeaway
The AIM Small Cap Equity Fund added LLNW to the portfolio in November 2019 with a price target of $5.58, representing a 31.9% potential upside. LLNW surpassed the price target in mid-February before soaring to a 52-week high of $6.07. Even through the recent market pullback, LLNW has returned 2.82% throughout the holding period. The investment thesis for LLNW is still intact and the market pullback provides an attractive opportunity to add to the LLNW position.

Source: FactSet