CDN News: Akamai and Amazon Have Outages, Limelight Misses Earnings, XO Settles With Level 3

It was a busy day on Monday for some of the content delivery companies in the industry. He's a recap:

Limelight Misses Earnings: Limelight reported earnings after the market closed and missed their forecast by $2M. Limelight said they lost $1M in revenue due to one of their customers having a security breach in the quarter and while Limelight didn't want to mention the customer by name, clearly the customer was Sony. With the Sony PlayStation Network (PSN) outage, Limelight lost about $1M in expected revenue towards their CDN business. The other $1M in lost revenue was a lower booking of revenue due to a delay in Limelight rolling out a new version of their EyeWonder platform, which has now been pushed back to Q1 of next year.

Limelight also forecast Q3 revenue below analysts expectations and their stock is getting hammered after hours, trading down to $2.40 a share. Considering how bad the entire market has been over the past week, it was the worst possible timing for Limelight to miss guidance. That said, if Sony didn't have the network outage, Limelight would have met their revenue projections for their CDN business, which is 60% of their revenue, so the revenue miss is not a sign that the CDN market in general is having problems or slowing down.

But, at no time on the call did Limelight reinforce the comments they made earlier in the year when they said their CDN business could grow 12% in 2011. It's still possible, but being we're already six weeks in the the third quarter I think Limelight would have mentioned if they were already starting to see an uptick in traffic, which they didn't. It now appears that 12% growth for their CDN business for the year might be high, with a more realistic expectation being about 10% growth in CDN.

While I don't normally blog about vendors earnings, I'm already hearing that Limelight is in discussions to be acquired and now, with Limelight missing earnings and their stock being close to their at an all-time low, this is the ideal time for someone like Verizon or AT&T to come in and acquire the company. I think we'll hear more about what the company is up to sometime this month.

Akamai Has An Outage: Late in the day on Monday, Akamai experienced a DNS related outage on their network forcing many of their customers websites, including apple.com and others, to be unavailable for about 30 minutes. While outages like this are never good, the positive thing to note is that I can't remember the last time Akamai's network had an outage of this magnitude.

The company emailed me more details on the outage late last night saying that the cause of the outage was as a reuslt of, "a configuration change to take some DNS servers out of service started to propagate to the production network. This otherwise routine change caused some DNS servers to restart repeatedly. The change was introduced at 19:12GMT, and at approximately 19:18 GMT, alerts promptly fired in the Akamai NOCC. A response team identified the issue and reverted the configuration change. The configuration change was reversed at approximately 19:42 GMT. The DNS issue lasted approximately 30 minutes from first impact to return to expected service. We do not anticipate that it will cause further issue."

Amazon Has An Outage: Late on Monday night, a portion of Amazon's EC2 service went down affecting quite a large number of customers, including Netflix. Amazon acknowledged that they were, "investigating connectivity issues for EC2 in the US-EAST-1 region" when the outage was reported and the company resolved the issue about 45 minutes later.

One thing the Akamai and Amazon outages should prove to everyone is that even though all the CDNs always talk about the redundancy built into their networks, ALL networks have outages at one time or another. There has never been a network that hasn't had a major outage and there is no such thing as 100% up-time, no matter what any CDN claims or guarantees in an SLA.

XO Settles With Level 3: When Level 3 announced their intentions to acquire Global Crossing, XO Communications raised concerns with the FCC and made it well known that they were against the pending merger. Apparently that's all behind them now as on Monday, both Level 3 and XO Communications filed a joint document with the FCC saying that the two companies have "reached an agreement that addresses all of XO’s concerns raised in its comments to the Commission about Level 3′s acquisition of Global Crossing."

I'm working on a post with more details on what the Global Crossing acquisition could mean to Level 3 as well as an update on their CDN business from my recent chat with Level 3's CEO Jim Crowe.

  • Eaglei

    Highly informative stuff !! Keep up the good work !!

  • http://infotech.com/ Derek Silva

    Thanks for all of the info Dan. It’s nice to have someone like you that has the opportunity to pay attention to this space so closely.

  • Jing Chen

    Thank you, Dan!

  • Paris

    Dan, Limelights drop in share price will make it an easier takeover target. That being said, what are your thoughts in acquisition pps?

  • http://www.BusinessOfVideo.com Dan Rayburn

    Yes, I do think Limelight’s drop in stock price now makes them an easier acquisition. As for the price, no idea. I’ll leave that to the financial analysts on Wall Street.

  • John

    What was your basis for stating that a buyout was pending? You have lost any credibility that you did have. Unfortunately let those who read your site understand that what you wrote as an analyst is unethical and extremely misleading. Will you disclose what interests you had and any related party transactions expanded to include friends and associates who profited off of your misleading information.

  • http://www.BusinessOfVideo.com Dan Rayburn

    John, I said I think a buyout is coming this month. We’ll have to wait and see if I am right, but there is nothing “unethical and extremely misleading” about what I wrote. And no, I won’t say who my sources are for what I am hearing.
    If anyone bought or sold stock based on a rumor, then they are not very smart. But that’s their problem, not mine. I don’t give out any kind financial advice, recommend stocks, estiamte earnings, or give any guidance.
    I have never bought, sold or traded a single share of stock in any public company.

  • John

    The end of my statement was asking whether or not any related party as defined above traded off of your prior article. Knowingly putting out misinformation to realize appreciation in a stock…running the stock and option prices up, while buying puts and shorting at a discount is something you should be conscious of. I find it disingenuous of you to say that “I have never bought, sold or traded a single share of stock in any public company”, even if it was not you directly that acted using this information. Did any associates of yours including friends/coworkers/relatives/hedge funds/syndicates utilize this for profit motives. You did not answer anything above.

  • http://www.BusinessOfVideo.com Dan Rayburn

    John, your question does not make any sense. When the NYT or WSJ publishes a rumor they hear about a company getting aquired, do you ask them who traded on their news? Of course not. You expect me to ask every reader who read my post what they did after they read it? Makes no sense.
    I have no clue what readers do with their own money, what they buy or how they spend it and I don’t ask them. That’s their business. I have never suggested, recommened or advised anyone to buy stock in any company and I don’t predict earnings, project revenue or estimate the change in stock prices. That’s what Wall Steet does and I don’t work on Wall Street.
    Also, you keep saying the word “misinformation”. Can you please show me proof that Limelight is not in discussions to be acquired and that what I am hearing is wrong. You can’t.
    You want to know who my sources are and where I got my info, and I will tell you again, I’m not going to say. When have you seen members of the media say who their sources are when they don’t have permission to do so?
    Also, the day of my post, Limelight’s stock closed up only $0.35 in total. So making it sound like I moved the stock and a lot of people made money because of what I wrote – where’s your proof? Only five days before my post, Limelight’s stock closed up $0.55 in one day. So what was the cause of that?
    I think it’s nice that you want to imply that I have so much readership that I can move a stock a whole $0.35 in one day, but that sounds pretty silly when you think about it.

  • Reza Sadjadpour

    Dan. I agree that John is wrong to call your ethics into question. But, it’s formally possible that someone used your good name and reputation to unload shares because they knew Limelight was going to miss big this quarter. That being said, I think even investment-minded readers like John will do well to follow your blog so they can understand the big transitions in media that are taking place. Thanks and keep up the good work.

  • http://www.BusinessOfVideo.com Dan Rayburn

    Hi Reza, I publishd my post 8 days before Limelight put out earnings and I had gotten the news a week before that. And if someone wanted to unload shares before earnings, they could have done that on July 25th when Limelight closed up $0.55, which was the highest they had closed in awhile.
    We’re talking about the difference of $0.35 in share price on the day of my post and no one can say my post is the reason Limelight’s shares were up that day. Not a single Wall Street firm even covered my news, put out a report on it or upgraded/downgraded the stock.

  • InvestorGater

    Dan, when you express a stock’s price in pennies, $0.35 sounds like a small gain. However, LLNW’s $0.35 was a single day’s gain of 8.5% on nearly triple LLNW’s volume the preceding market day.
    Institutions deal with thousands and with millions of shares of stock, not mere hundreds. And when insiders inform them of an impending potential significant gain or loss, they buy and sell — before the gain/loss and on the day of the gain/loss — and pocket that significant profit. But you are innocently unaware of that kind of trading?
    The most salient point . . . you published your blog “All Signs Point To Limelight Networks In Discussions To Be Acquired” on August 1st; Limelight reported its earnings on August 8th. You published your blog exactly one week before Limelight reported.
    BUT you had “gotten the news” a FULL WEEK “before that.” Why did you wait seven long days before publishing your information?

  • http://www.BusinessOfVideo.com Dan Rayburn

    Blogging is just one of my many jobs. I don’t always have enough time to blog right away about news I hear. It sometimes takes me days or even a week or more to check with more sources, try to get more details and write and publish a post.
    Again, how people trade stocks and what they buy has nothing to do with me nor would I have any idea what is bought by who or when. When Limelight’s stock was up $0.55 five days before my post, did you go and ask all the people who bought stock that day why they bought it and what news they heard and who they heard it from? Of course not.
    If someone buys or sells stocks, of any company, based on what I write on my blog, that’s their decision. I’m not recommending invesment advice of any kind. It’s no different if they buy or sell based on something they read in the NYT, see on a chat board or a rumor they hear from somewhere else. That’s their right to do and the risk they take in buying and selling stocks.

  • InvestorGater

    On Yahoo’s AKAM board, it’s been noted that exactly one week before Akamai was scheduled to report its 4th quarter earnings for 2008, you blogged about seeing Limelight deliver content for Apple during that 4th quarter. I just looked at that blog again and found you wrote this:
    “I started noticing all of these changes around the November time frame and didn’t see a single piece of content being delivered for Apple, by Limelight, anytime before that. That’s not to say it could not of been happening earlier, but I am one of those Apple freaks who downloads tons of stuff, always looking at where it comes from and have never seen the llnw.net domain show up anywhere before November.”
    http://blog.streamingmedia.com/the_business_of_online_vi/2009/01/apple-now-using-dual-cdn-vendors-limelight-wins-apples-delivery-business.html
    Dan, for TWO to THREE MONTHS you watched Limelight deliver content for Apple . . . yet you WAITED to inform your readers until exactly ONE WEEK before Akamai was to report its Q4 earnings. Did you not “have enough time to blog right away about” Limelight delivering for one of Akamai’s biggest, and most noted, customers?

  • http://www.BusinessOfVideo.com Dan Rayburn

    I don’t track when earnings calls are. I don’t even attend most of them and simply read the transcripts. Via conversations about companies, people remind me when the calls are close. I don’t decide on when I publish something based on when a company reports or not. Why would I, I am not a financial analyst.
    I don’t remember what the circumstances were or what I was doing 3 years ago at that time, but you have to do trace routes for a long period of time, on a lot of content, to see any real trends. So that’s something I watch over an extended period of time.
    Also, you should read this post of mine:
    http://blog.streamingmedia.com/the_business_of_online_vi/2009/12/the-business-of-blogging-is-ruining-the-medium.html
    I don’t operate my blog like most others. Most bloggers care about being the first one to put out news, calling it an “exclusive”, arguing with other bloggers over who broke the news first and keeping their post to under 800 words. I think that is silly. I care about trying to tell a story, with a more detailed post.
    I am going for quality on the blog, not quantity.
    Also, Akamai has never said what Apple’s contract is worth, so saying Apple is one of Akamai’s “biggest customers” is a guess on your part, unless you have data to show otherwise.

  • InvestorGater

    Dan, in Seeking Alpha’s entire collection of transcripts, the one and only earnings call during which you phoned in to ask questions was Limelight’s Quarter 1 in 2008. It appears that no other CDN’s earnings results interested you as keenly.
    You said “. . . you have to do trace routes for a long period of time, on a lot of content, to see any real trends. So that’s something I watch over an extended period of time.”
    I agree. You watched Apple’s trace routes right up to exactly one week before Akamai reported its Quarter 4 and full year earnings. As Paul Sagan observed during his presentation in that earnings call:
    “One relationship with one of these partner is Apple, have been raising questions from many of you recently, as it seems to every year or two right around Groundhog Day. . . .”
    http://seekingalpha.com/article/118582-akamai-technologies-inc-q4-earnings-call-transcript
    Doesn’t that sound like a number of parties were interested in Akamai’s quarter-4/full-year earnings for 2008 . . . perhaps a party or two who mentioned to you their interest?
    And is it a COINCIDENCE that the chart shows AKAM started taking off right about THE TIME of that 2008 quarter-4/full-year earnings call and CONTINUED RISING throughout the rest of 2009 AND 2010??
    Since Apple’s market cap currently rivals that of the largest US company, Exxon Mobil Corporation, cannot one reasonably infer that Apple is one of Akamai’s largest customers?

  • http://www.BusinessOfVideo.com Dan Rayburn

    I am still doing traceroutes on Apple content. I have never stopped.
    Sure, you can infer that Apple might be one Akamai’s largest customers. But previously you stated that as fact, as opposed to a guess. None of us knows for sure.

  • InvestorGater

    C’mon, Dan :-) you know the traceroutes you are doing today are irrelevant to the context of this discussion.
    When I said Apple was “one of Akamai’s biggest, and most noted, customers” I was comfortable with that being fact because I already knew that Apple’s market cap was on a par with Exxon’s. Can you name a company whose market cap rivals Exxon’s . . . yet is small and insignificant? I also know (and knew then) Apple’s iPhone market share and its iPad market share, its revenues and cash horde. It is impossible to know these things and doubt that Apple is gargantuan.
    Anyway, my primary point is that AKAM began climbing at the time of its 2008 Q4 earnings release and continued climbing for two years. Those two years of AKAM’s ascent from its Q4-full-year earnings announcement point back to that ER as a seminal event.

  • Web Domene

    I think you have a point here Investorgater.