Content distribution firm Limelight Networks (LLNW) has been through a lot of pain its first year as a public company, including missed quarters and a messy patent war with its much larger archrival Akamai (AKAM). But now it’s time to buy LLNW, says Jefferies analyst Katherine Egbert.
Limelight shares, which had lost more than 80% of their value since last July, perked up 6.6% today to $3.86. Why buy? Egbert says:
- Limelight is going to be streaming a LOT of video for NBC’s Olympics coverage — 2,200 hours of live streaming and 3,000 hours of on-demand replays/highlights/etc. — and it’s “highly unlikely” the current Wall Street consensus is taking that into account. Egbert estimates that LLNW gets 23 cents of revenue for each hour of on-demand viewing and 36 cents for every hour of live viewing. [Hard to guess how much people will watch, but we’ve tested NBC’s site out — and the video looks really good.]
- A majority of Limelight customers are no longer using the systems covered by Akamai’s patent. Once the judge gets around to ruling on pending motions, it’s “highly likely” Limelight will have no customers left on the offending systems. Which means Limelight — or anyone who acquires Limelight — would have limited damages to pay Akamai.
- She thinks Akamai should be the one buying Limelight, to “restore some pricing integrity in the CDN market” by reducing the number of big players.
Egbert raised her price target to $6 from $4, and increased her 2008 full-year revenue estimate by $1.9 million, to $124.9 million from $122.8 million. The Street consensus is $123.03.
We’re somewhat conflicted here — we share board members and office space with Panther Express, a Limelight competitor — but we’ll note that the last part about pricing is valid. We recently spoke to a video startup who just chose Limelight over Akamai because they offered a 30% lower price for each gigabyte they push across the network. Knocking Limelight, which has been winning a lot of customers lately, out of the market — at the right price — might not be a terrible idea for Akamai.
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