Revisiting Limelight Networks Stock as a Streaming Winner

Internet content delivery network (CDN) provider Limelight Networks (NASDAQ: LLNW) shares recently got punished on its Q4 2020 earnings. The provider of edge cloud services makes it possible for the internet to operate rapidly and smoothly much like the express toll lanes suffered a swing to losses in Q4. The work learns and entertain-at-home trend has bolstered the insatiable demand for bandwidth due to the pandemic, but it’s also cut into margins. Even competitor Akami Technologies NASDAQ: AKAM felt the margin pressures in its latest earnings. However, the growth of streaming video services will only continue to ramp up, making the CDN industry a growing necessity for these companies. Limelight installed a new CEO to accelerate the turnaround which could make shares attractive at opportunistic pullback levels.

Q4 FY 2020 Earnings Release

On Feb. 11, 2021, Limelight Networks reported its Q4 2020 earnings for the quarter ended in December 2020. The Company reported a diluted earnings-per-share (EPS) loss of (-$0.03) versus consensus analyst estimates for a profit $0.02, a (-$0.05) miss. Revenues fell (-7.8%) year-over-year (YoY) to $55.4 million missing consensus estimates for $61.27 million. Full year revenues met estimates at $230 million, representing a 15% YoY growth. The top 20 customers accounted for 75% of total Q4 revenues with international customers representing 41% of total revenues.

Conference Call Takeaways

Newly appointed Limelight Networks CEO, Bob Lyons, set the tone, “The growth and profitability of the company are not where they need to be… Clearly, I believe in our ability to close the gaps and position this Company as a leader in delivered edge-based solutions.” CFO Dan Boncel explained the Q4 revenue shortfall, “We experienced record day, month and quarterly traffic volumes during the fourth quarter driven by accelerated adoption of direct-to-consumer streaming services. However, price compression more than offset higher volume, resulting in a year-over-year decline in revenue… We could not simultaneously offset price declines with increased volume or cost reduction and network efficiency this quarter. That said, we believe we can increase margin from these levels throughout 2021 and we’ve already taken steps to accomplish this.”

Three Priorities

CEO Lyons joined Limelight just a week before the conference call. He went on to outline three priorities to accelerate growth and improve profitability moving forward. The first to prioritize improving the core CDN business in a “large and growing” market by managing costs and performance better. The Company has engaged a top consulting firm to accelerate this process. Secondly, the expansion of the core business with improved performance and cost structure enables more pricing flexibility. The Company has established, “…a win room that will allow us to aggressively pursue greater share traffic and spend from existing customers while also growing our pipeline of new opportunities.” The third priority is to strategically pursue opportunities that extend the core business. The Company will invest in opportunities to bolster Edge Platform capabilities including content, computer, and cybersecurity solutions. The Company will focus on the three priorities for the next 90-days and provide more information in the coming months. CEO Lyons set the bar and the narrative for a turnaround situation, which is why the stock should have some buoyancy as markets love the notion of a “new start” and turnaround.

 Limelight Networks Price Trajectories

Using the rifle charts on the weekly and daily time frames provides a broader view of the landscape for LLNW stock. The monthly rifle chart has been in a downtrend powered by a stochastic mini inverse pup with the falling 5-period moving average (MA) near the $4.15 Fibonacci (fib) level.  The monthly market structure low (MSL) can trigger above $4.71. The weekly market structure high (MSH) sell triggered below the $6.66 level in July 2020. The weekly rifle chart is in a make or break as it was trying to breakout ahead of the Q4 earnings report. The swift sell-off has stifled and stalled the weekly uptrend as the weekly 5-period MA at $4.29 nearly overlaps with the 15-period MA at $4.22. The weekly stochastic has stalled but will need to break through the 5-period MA to trigger a pup breakout. Prudent investors can monitor opportunistic pullback and entry levels at the $3.85 fib, $3.51 fib, $3.21 fib, $2.95 fib and the $2.69 fib. These pullbacks may only occur on a sell-the-news reaction to the earnings due out July 20, 2020, after the close. Patience on the entries and scaling is the key to long-term upside. Keep an eye on peers AKAM and NFLX price action as a lead.