The fate of content delivery network Limelight Networks (LLNW) sits in the hands of a Federal judge in Boston, who will decide whether to issue a permanent injunction against Limelight for violating patents controlled by larger rival Akamai Technologies (AKAM). But let’s say the judge does come down hard on Limelight, and essentially hamstrings a good chunk of its business. What’s the rest worth?
In a note, Jefferies analyst Katherine Egbert estimates that about half of Limelight’s business — software downloads, live streaming, “non-traffic-related” CDN services, and its International business — doesn’t infringe Akamai’s patent.
– Egberg estimates that the “clean” 50% of revenue could reach $82 million in 2009… and at a 10x terminal value multiple, is worth $2.92 per share.
– Based on the probabilities of various cash settlement outcomes (Limelight pays Akamai a lot, a little, etc.), she estimates Limelight’s cash balance as $85 million at the time of the judge’s decision, which would be worth about $1.12 per share.
– And the “infringing” half of Limelight’s business? Egbert says it would have different value to different potential acquirers, based on whether they’d be buying Limelight for its customer base (like Akamai might), for its technology (like Microsoft might), or for both. So she stops short of assigning a cash value to the “dirty” half of Limelight.
Either way, the “clean” half and Limelight’s cash balance add up to $4.04 per share, per Egbert’s estimate — 34% more than the $3.02 LLNW closed at on Tuesday. (But still 83% below its 52-week-high. Yikes.)
The problem: It’s not likely that anyone would buy Limelight until the judge has ruled on the permanent injunction, she notes. If Limelight gets good news, its stock will pop. If bad, shares will tank.
Limelight Networks Feeling Pricing Pressure, Q1 Misses
Akamai-Limelight Patent War Could Drag On ‘Til 2010, No Bailout Imminent: Analyst
Limelight CEO: Akamai Patent War Not Costing Us Customers (Yet?)
Disclosure: Panther Express, one of SAI’s sister companies, competes with Akamai and Limelight.