Limelight last week lowered its guidance for fiscal 2018, but analysts at Cowen Equity Research see reason to be optimistic about 2019 thanks to repricing and traffic growth.
“Earlier this year, we made the decision to move forward with a video-centric strategy, which led to foregoing certain sources of revenue to focus on more robust, faster-growing opportunities better aligned with our long-term goals. We also underwent periodic repricing of certain major accounts, from which we expect disproportionately positive revenue growth in 2019. Thus, we are revising our expectations for 2018,” said Limelight CEO Bob Lento in a statement. “At the same time, we are increasingly confident regarding our outlook, as demonstrated by our positive 2019 guidance."
Cowen analyst Jonathan Charbonneau noted that Limelight previously disclosed it had repriced six of its top 10 customers and that it has continued to deprioritize traffic where pricing is the most important factor.
“To that point, the company also had previously noted two customers that were previously top 10 customers had left for competitors and are no longer on the Limelight network. One of those customers left prior to 3Q18 and the other prior to 4Q18. As a result, Limelight was simply not able to backfill the lost revenue/traffic quick enough in 4Q18 in order to be able to hit prior 2018 guidance,” Charbonneau wrote in a research note.
But Cowen said it’s encouraged by the improvement Limelight has seen late in the fourth quarter and that it believes Limelight is right not to sacrifice margin for growth, which has placed some pressure on the top line in the near term.
“We also assume there is at least some conservatism embedded in 2019 guidance and despite the significant implied ramp in 2H19, we believe it is likely achievable. And at the midpoint, 2019 revenue guidance does imply ~13% Y/Y growth, although we do appreciate it follows a disappointing end to 2018,” Charbonneau wrote.
Limelight said it is working with several large U.S. broadcasters and expects to generate substantial revenues from this group in 2019. The company also said its low-latency video streaming business is seeing such high demand that it has committed to doubling capacity for this product.
Limelight also noted its agreement with Ericsson to collaborate on content delivery and edge cloud services will “contribute meaningfully towards our 2019 revenue and margin goals in the second half of 2019.” The company said soon it will make an executive leadership announcement for its edge initiative.