Exciting times are ahead for Limelight Networks (LLNW), whose shares soared 13% after it announced the upcoming acquisition of Yahoo’s edge computing company, Edgecast, for 7.2 million shares of common stock.
The deal is set to close in the second half of this year and will come with an overall rebranding of Limelight with the new name Edgio.
Both companies will benefit from the merger, giving Yahoo almost 32% ownership of the conglomerate, with Limelight seeing a myriad of benefits resulting from the deal.
Management claims that the purchase will raise Limelight’s current total addressable market of $12 billion to new heights of $40 billion. The content delivery network is set to see double its current yearly revenue, expand its gross margins, and strengthen recurring revenue growth.
LLNW’s top customer concentration will lower from 29% to 13%, which will help revenue visibility according to Northland analyst Michael Latimore. He has high praise for the decision to combine what he thinks are very compatible services.
“Edgecast has customers that have traffic patterns counter-cyclical to Limelight’s organic business, and this should help overall network utilization and gross margin,” he says. Furthermore, “Edgecast is already on Linux, and that should help Limelight’s shift to Linux as well. Limelight’s direct salesforce can now sell Edgecast, and Edgecast can accelerate Limelight’s global presence and channel development.”
Limelight has been increasing its security capabilities, and this transaction will hasten that process. Latimore mentions that the content delivery services company is “particularly excited” about having what will be a $100 million web application business, with Layer0 and Edgecast security services to be included.
Additionally, Yahoo investor Apollo has pledged to invest $30 million into the combined company, which the Northland analyst says leaves the company with a “Strong balance sheet for growth and more acquisitions.” Overall, management expects the deal to produce $50 million in cost synergies.
In response to the acquisition, the 5-star analyst upgraded his rating on LLNW from Market Perform (i.e. Hold) to Outperform (i.e., Buy). In a further bullish signal, he bumped up the price target from $5 to $6.50 (42% upside potential). (To watch Latimore’s track record, click here)
In general, other Wall Street analysts are in agreement. 5 Buys and 1 Hold add up to a Strong Buy analyst consensus. Given the $5.71 average price target, shares could surge ~25% in the coming twelve months. (See Limelight stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
