Netflix (NFLX) Kills Limelight Networks (LLNW), Other CDNs
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Netflix (Nasdaq: NFLX) blindsided commercial content delivery network (CDNs) today after announcing that it has opened its own free content delivery network. Stocks in the group are getting slaughtered.
The moves is most negative for Limelight Networks (Nasdaq: LLNW), give its sizable Netflix exposure, according to analysts at Jefferies. Netflix accounted for 11% of Limelight Networks revenue in CY11.
Commenting on the news, Jefferies' analyst said, "LLNW is about 18 months into a 3-year NFLX contract, and NFLX will continue to work with its commercial CDNs providers throughout the existing terms. This will be a near-term negative as LLNW will need to replace measurable revenue, and extrapolation of the NFLX decision could breed additional concerns; though we believe NFLX’s size makes it a unique situation. For LLNW, however, the NFLX revenue was not profitable, and we believe LLNW has in the past turned down expansion of NFLX volume for this reason. LLNW will be tested over the next 18 months to replace the NFLX traffic and scale its VAS business but is moving to a more capital-light model. The company expects CDN traffic growth within the rest of its customer base to continue to grow to fill the NFLX capacity in addition to new customer growth; both of which would likely be higher profit."
Around the Sector:
Limelight Networks, Inc. (Nasdaq: LLNW) down 9%
Akamai Technologies, Inc. (Nasdaq: AKAM) down 7%
Level 3 Communications Inc. (Nasdaq: LVLT) down 2%
The moves is most negative for Limelight Networks (Nasdaq: LLNW), give its sizable Netflix exposure, according to analysts at Jefferies. Netflix accounted for 11% of Limelight Networks revenue in CY11.
Commenting on the news, Jefferies' analyst said, "LLNW is about 18 months into a 3-year NFLX contract, and NFLX will continue to work with its commercial CDNs providers throughout the existing terms. This will be a near-term negative as LLNW will need to replace measurable revenue, and extrapolation of the NFLX decision could breed additional concerns; though we believe NFLX’s size makes it a unique situation. For LLNW, however, the NFLX revenue was not profitable, and we believe LLNW has in the past turned down expansion of NFLX volume for this reason. LLNW will be tested over the next 18 months to replace the NFLX traffic and scale its VAS business but is moving to a more capital-light model. The company expects CDN traffic growth within the rest of its customer base to continue to grow to fill the NFLX capacity in addition to new customer growth; both of which would likely be higher profit."
Around the Sector:
Limelight Networks, Inc. (Nasdaq: LLNW) down 9%
Akamai Technologies, Inc. (Nasdaq: AKAM) down 7%
Level 3 Communications Inc. (Nasdaq: LVLT) down 2%
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