Does Limelight Networks Have Upside Potential?

by Trefis Team
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After a 60% rally post 23rd March, we believe Limelight Networks’ stock (NASDAQ: LLNW) has limited upside based on its valuation. Limelight Networks’ stock has rallied from $5 to $8 off the recent bottom compared to the S&P which moved 42%. The primary reason for the recovery in March and April was high Content Delivery Network (CDN) traffic due to the stay-at-home measures from the Covid-19 pandemic. The company saw record traffic starting in the last two weeks of March into April mostly from video streaming. They also introduced Live Push Ingest service which enables content providers to push live streaming video through their CDN. The company saw a jump in share price recently after a press release on 23rd June wherein the company’s research show a surge in streaming during Covid-19 as people turn to online video for communication, news, entertainment, exercise, and more.

Limelight Networks’ stock has reached a peak last seen in 2011. The pandemic also helped the demand and revenues for the company as it raised the lower end of its FY 2020 guidance with the Q1 2020 earnings release. We believe the market has already factored this in, and there is limited upside potential in the near term.

The company gained 76% in share price since the end of 2017, some of this rise over the last 2 years was helped by the 2% increase seen in Limelight Networks’ revenues from 2017 to 2019, while its losses fell from from $7.6 million in 2017 to $16 million in 2019.

The company has seen slight revenue growth over recent years, while its P/S (price-to-sales) multiple has remained largely flat. We believe the stock has limited upside after the recent rally and the potential uncertainty due to the Covid outbreak. Our dashboard What Factors Drove 76% Change In Limelight Networks Stock Between 2017 And Now? has the underlying numbers.

Limelight Networks’ P/S multiple remained nearly flat between 2017-2019. While the company’s P/S has now risen to 4.3x there is a possible downside when the current P/S is compared to levels seen in the past years. P/S of 2.4x at the end of 2019 and 2.6x as late as 2017.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Due to the stay-at-home orders there have been increases in streaming and this has also helped Content Delivery Networks. We believe Limelight Networks’ Q2 results will confirm the benefit to its revenue.

However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations  become important in finding value.

While Limelight Networks’ stock has limited upside potential, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

 

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