Internet content delivery network provider Limelight Networks (NASDAQ: LLNW)
shares have been melting up since its previous Q1 2020 earnings sell-off. Limelight is a smaller player in the content delivery network industry but growing quickly with major Fortune 500 companies.
Competitor Akamai has been punished in 2020 trading near the COVID-19 pandemic lows even after the benchmark S&P 500 index (NYSEARCA: SPY) made its recovery into July. Poultry farms have undergone a number of COVID-19 related problems ranging from plant shutdown, infected workers to China import restrictions. While peers including Tyson Foods (NYSE: TSN) and Sanderson Farms (NASDAQ: SFAM) are suffering the same fate, Pilgrim’s Pride shares may present the best value as the industry tries to recover. Risk-tolerant investors can monitor the peers but stalk opportunistic pullback levels on PPC shares for a better recovery play.
Q1 FY 2020 Earnings Release
On April 23, 2020, Limelight Networks reported its Q1 2020 earnings for the quarter ended in March 29, 2020. Earnings by consensus analyst estimates by $0.02 per share by coming in breakeven versus (-$0.02). Revenues beat estimates coming in at $57 million versus $54.66 million, rising 31.7% year-over-year (YoY). This milestone was the largest first-quarter revenue in company history. Management guided full-year (FY) EPS to a range of breakeven to $0.10 versus $0.06 per share and FY revenues to a range of $225 million to $235 million versus $221.09 million analyst estimates.
Pandemic Traffic Demand
During the conference call, management noted that traffic volume accelerated in March due to the global isolation mandates. However, the gains were partially offset by the loss of live events including March Madness and other sporting events. The Company is aggressively expanding its network capacity to handle the increasing traffic despite uncertainty of when isolation mandates get lifted. While customer acquisition was strong early in Q1 2020, it slowed in March due to the pandemic. However, the average-sized deal is 50% larger YoY. Streaming services accounted for a large chunk of the demand due to its new on-demand OTT offerings with some of the largest global media company clients. Traffic volume accelerated since the start of global stay-at-home mandates beginning in the last two weeks of March to accelerate into April. The Company also believes average customer international customer revenues average around $100,000, making it the highest in the industry.
Limelight began customer trials since the third quarter with their serverless compute capabilities called EdgeFunctions. This service offers clients the flexibility and convenience of deploying their own application functions into network edge locations to run on demand. This service is generating a “tremendous amount of interest”, primarily with its video delivery customers. Limelight plans to launch this service in early Q2 2020.
Conference Call Takeaways
While customer headcount dropped due to smaller clients, the larger customers continue to more than offset the loss. A top 20 customer is the equivalent of 200 smaller customers. The drop in live sporting events was offset by more streaming traffic. New streaming services from clients include NBC’s Peacock and HBO Max coming in the latter half of the year. By April 23, 2020, the Company didn’t see any slowdown in traffic needs. Competitors Akamai Technologies (NASDAQ: AKAM) had noted 30% month-over-month traffic increases. Management mentioned they saw similar peaks as well. The Company may be lowballing their guidance according to an analyst on the call. They considered the canceling of March Madness, Major League Baseball, and Olympics being pushing next year. The loss of live events hurt but streaming not only offset losses but actually exceeded them positively. Investors should consider taking positions in Limelight Networks ahead of Q2 2020 earnings due out at the end of July 2020. Peer stocks to track are AKAM and streaming giant Netflix (NASDAQ: NFLX) making new highs.
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 market structure low (MSL) triggered above $5.81. The weekly stochastic has a bullish stochastic rise towards 80-band overshooting its upper Bollinger Bands (BBs) at $8.05 to $8.37 Fibonacci (fib) level. The daily chart has a pup breakout above the $7.75 fib projecting upside target at the upper BBs near the $9.41 fib if the monthly market structure high (MSH) trigger breaks at $8.97, with longer-term upside to $10.33 fib and $11.24. Shares may get squeezed into earnings so it’s important not to chase but watch for an opportunistic pullback and entry levels at $7.10 daily 15-pd MA, $6.82 fib and the $5.87 fib and monthly MSL trigger. 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.
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