No Value To Akamai In Acquiring Limelight Networks

In my eyes, there has been too much talk in the past few days from some analysts saying that Akamai should purchase Limelight. What I don't see any of them explaining is what value that would have to Akamai other than to say it will remove a competitor from the market. So far, that's all I see them saying. But what about the negative impact that acquiring Limelight could have on Akamai's business? You don't hear any of them talking about that or even running the numbers to see just how much Akamai would have to spend.

If Akamai acquired Limelight, they would have to spend a great deal of time and internal resources to see the acquisition through completion. Lots of technical resources would be expended by Akamai to transition customers over to the Akamai network and deal with all of the integration hassle. Akamai just spent the past two years doing all of the integration work from their acquisition of Netli and Nine Systems. The last thing they need right now is to take on more integration work that would be a lot more complex than the last two were. Plus, is now the right time for Akamai to be focusing on anything other than their core business? With the lower than expected guidance Akamai gave last week in their Q2 earning call, Akamai needs to continue to focus on their core business and growth. Acquiring a $100+ million dollar business is not the way to do that and I think Akamai is smart enough to know that.

In addition, Limelight would not be cheap. Even with the shadow that Limelight is under due to Akamai's patent suit, Limelight is still close to doing $125 million this year in revenue. Akamai's would still have to pay over $400 million for Limelight, even if Limelight eventually have to pay some sort of penalty to Akamai. Limelight is not is a desperate situation. They have cash, they have customers and they are not going away anytime soon. And if for some reason things got so bad at Limelight that they had to sell, you know they would shop the company to multiple players others than Akamai and get as much as they could for it. There is a good bet that many would pay more for Limelight, think telcos, than Akamai would be willing to.

But lets look past that and say Akamai acquired Limelight. What do they get? They don't need Limelight's network, don't need their hardware and infrastructure, Limelight has no granted patents that I am aware of and has no applications or ecosystem components they own. Yes, Limelight has customers and revenue, which is all Akamai would want. But, what percentage of Limelight customers would Akamai keep in an acquisition? My bet would be less than 40%. If Limelight does $125 million this year, Akamai would add roughly $50 million to their top line revenue. And with 20 of Limelight's customers making up 50% of their revenue, clearly Akamai could very easily get much less than 40% of Limelight's revenue. And keep in mind that Microsoft likes to spread their business around to multiple CDNs. So the idea that all of a sudden Microsoft or other large content owners would all of a sudden consolidate all of their business with Akamai, or any single provider, just isn't happening.

So does it make sense for Akamai to spend at least $400 million to acquire Limelight, have to use a lot of internal resources, increase their revenue by a small percentage and do all of that just to remove a competitor from the market? I don't think so. I think too many people are looking to when Akamai sued Speedera and then acquired them and think the same will happen to Limelight. Great, but that's not a fair comparison. The quarter before Speedera was acquired, Speedera did just over $8 million in revenue. Limelight is averaging 4x that per quarter. Speedera was acquired for $130 million in Akamai stock. It would take at least 3x that in order for Akamai to acquire Limelight.

That's not to say that Akamai can't acquire Limelight, anything can happen. But I don't see any reason why they would or what they would get from it. Someone thinks otherwise, other than you own stock and want to see it happen, happy to hear it in the comments section.

Comments

[Rob Powell]

I agree, when one runs the numbers, buying Limelight gets them little or nothing. The only thing Akamai would really gain is the elimination of a competitor, but there are others ready to step into that void. Limelight represents most of the anti-Akamai vote, take them away and that group will find someone else to speak through.

It is far more likely that a carrier will buy Limelight than anyone else, as a bootstrap into the industry.

Rob

[AZ man]

I also agree, it is silly to think that there is anything to gain from a purchase like this, just silly. Akemai has market share. Outside the CDN world, people only know them, and are not smart enough to look deeper to find higher quality or lower price. Limelight has enough on its hands right now. They have to deliver the Olympics on Silverlight, while still meeting their customers needs. No good fit here. No innovation, just the Titanic and a tub in the middle of the ocean.....

[xabra]

hmmm, if (big if) they (AKAM) were interested in buying LLNW, now would be the right time. I am a buyer (at times) of CDN services and I have postponed any decision with respect to LLNW (indeed the last thing I bought was 500 TB from Akamai). In short, they are down, nobody expects them to win the patent suit ... their price won't be much better than now.

[Jack]

Xabra, So you're saying you think AKAM will put LLNW out of business? Why? According to their balance sheet, they have almost $200M in the bank and almost no debt. So even IF they end up owing AKAM the $45M, they still have plenty to work with.

According to Dan (or another poster here), LLNW isn't moving traffic on their network in a way that violates the patent anymore. So that’s a moot issue now.

I read an article in the Arizona Republic (www.azcentral.com) that LLNW plans on bringing on more than 100 new employees this year. Do you really think if LLNW was in any serious trouble, they would be hiring like mad? I think they're ready for a break out!

I'm bullish on LLNW. So go ahead and give AKAM your 500TB, but you're probably paying 4x too much. You think NBC chose LLNW for the Olympics because they like Mike Gordon's tie? No, it's a superiour network to deliver that type of content on.