Categories Analysis, Interviews, Technology

Here’s why Limelight Networks is a great stock during cord-cutting times

With cord cutting still gaining momentum in different parts of the world, investors are frantically on the lookout for stocks that may benefit from the trend. While the obvious beneficiaries are technology firms that provide OTT services, you probably don’t want to miss out on companies that actually enable distribution of these large amounts of data through global networks – in other words, content delivery network (CDN) providers. 

Founded in 2001, Limelight Networks (NASDAQ: LLNW) is a major player in the content delivery space with an enviable customer base that includes Amazon Prime, Roku (NASDAQ: ROKU), CBS Media Group, DirecTV, Sony (NYSE: SNE), Tencent, Sky and many others. 

In the past six months, the stock has shot up almost 140% and is currently trading near a 9-year high. So what has led to this sudden optimism? 

Limelight Networks Q4 2019 earnings results

Limelight Networks CFO Sajid Malhotra told AlphaStreet the massive shift from the cable industry to internet-based delivery offers plenty of room for growth for all players in the industry.  “Instead of us trying to get business from Akamai (NASDAQ: AKAM) or Verizon (NYSE: VZ) or Centrylink (NYSE: CTL), which everybody is still doing, there is massive amounts of business that is coming from the cable industry. You see that in the launches of Apple TV and Disney+, besides in what CBS is doing online and what HBO plans to do,” he said.  

Double-digit revenue growth

And when you take into account this revolutionary shift that is happening around the globe, it provides a lot of scope to feel optimistic. The CFO feels the industry growth could exceed that of Standard and Poor’s. 

In fact, the industry tailwinds give Limelight Networks enough confidence to project a double-digit revenue growth in 2020, as compared to the single-digit growths registered during the past few years. This year, investors would also be scrutinizing how the company transforms this positive industry outlook into bottom-line growth.  

READ: Q&A from the Q4 2019 Limelight Networks earnings conference call

Malhotra clarified that the firm’s strategy is to find the right balance between growth and profitability. “There are companies that are growing at a slower rate and making a lot of money, like Akamai. And then there are smaller ones, which are growing very fast but losing a lot of money. And we fit right in the middle,” the executive told AlphaStreet.  

Customers turning self-sufficient

As mentioned earlier, Limelight’s client base includes many huge technology companies. So what if they decide to develop their own content development channels, rather than depending on service providers?

LISTEN TO: Limelight Technologies Q4 2019 full conference call

Though some companies have done so in the past, Malhotra said he no longer sees such a trend going forward. According to him, quality, functionality, and pricing of services by companies such as Limelight and Akamai have improved drastically in the past few years that it hardly makes sense for companies to invest in the development of their CDNs. 

Resilience to global events

Another key factor making the Scottsdale, Arizona-based firm, as well as the broader industry, more attractive is the fact that they remain generally insulated from global events such as trade wars and currency fluctuations. Last week, Nasdaq 100 took a hit, partly driven by fears surrounding the Corona outbreak in South Korea and Italy. 

The CFO said he has not yet seen any impact on Limelight from the epidemic outbreak. 

Get access to timely and accurate verbatim transcripts that are published within hours of the event.

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