Content delivery veteran Limelight Networks (NASDAQ: LLNW) reported fourth-quarter results at the end of January. Break-even earnings per diluted share on revenues of $44 million matched up almost exactly with a downbeat guidance update issued in December. The stock crashed hard on the guidance cut but has since climbed back to where it was before that gloomy release.
The earnings release and the conference call that followed will give you a good feel for Limelight's current and upcoming business, but they didn't tell the whole story. Limelight CFO Sajid Malhotra gave me a few minutes of his time on the phone, covering many details that never made it into the official communication channels.
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Here are the five most valuable insights the CFO shared with me.
1. Yes, that was a bad quarter. No, investors shouldn't panic.
In other words, Limelight took some lumps in the fourth quarter, but the long-term business opportunity remains intact. Mr. Malhotra likes the long-term growth prospects in the content delivery market, and he would argue that this weak quarter was a rare speed bump along the road to bigger and better things.
2. Limelight is getting aggressive
Management expects adjusted earnings to land between $0.10 and $0.20 per share in 2019, up from $0.12 in 2018. The company's bottom-line improvements were more about reducing losses than increasing earnings for many years but are now turning into clear-cut profitability boosts.
On the top line, Limelight suffered shrinking revenues for many years but now expects a 12% year-over-year gain in 2019. That would be the strongest sales growth this company has recorded since 2010.
So Sajid isn't mincing words here. The company really is setting ambitious goals for 2019.
3. Don't call it a comeback
To be clear, that positive trajectory started in 2015 and 2016. Investors who tapped this stock three years ago have enjoyed a 140% return so far amid steady improvements across Limelight's financial platform. The optimistic next-year guidance really shouldn't come as a surprise against that fruitful slice of recent history.
4. Today's growth engines
These are not cookie-cutter services, easily replaced by industry rivals or by a client's in-house infrastructure. Limelight is focusing on the development and implementation of high-quality media-delivery services with unique selling points such as low latency and scalable video streams in many different formats. The price wars of years gone by have turned into a battle over service quality, and Limelight is performing well enough in these battles to leave some lower-margin contracts on the table.
5. How important is Fortnite?
So the biggest video game in years does have a place in Limelight's client portfolio, but the stop-and-go data traffic that it produces isn't a game changer for this company. Simple game updates fall in the lower-margin business bucket for Limelight. It's certainly a welcome revenue stream but not a wildly profitable one. That's why the company is turning its attention to more demanding fare such as video streaming.
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