Limelight, FSLY, and NET

I’m not a techie, but when I stumbled upon Limelight Networks (LLNW), I saw that they have some similarities to FSLY and NET…

Caveat: I’m not a techie. This may be like comparing rocks to nuclear warheads. But LLNW has an “Edge” product and a CDN and everything. Seems that they’re in a similar business, but obviously they must be way behind in the tech.

…but unlike FSLY and NET which trade at trailing PS ratios between 30 and 50, LLNW trades at a PS ratio of roughly 3. That’s right, it’s one tenth as expensive. It’s growth is also much, much slower, so the valuation makes sense. But I just thought I’d watch them, and I have been. Today they reported Q3, and they reduced their EPS guidance for the year. Didn’t raise revenue guidance either. I sold LLNW.

…But aslo, I have sold most of FSLY position and reduced my NET position. I’m just not sure edge networks are able to differentiate themselves enough to really enjoy hypergrowth. If any of them have a shot, it’s probably NET. It’s doing a million impressive things, like Stocknovice pointed out here: https://discussion.fool.com/cloudflare39s-crushing-it-34646557.a…

But NET is growing at under 50% and being priced like they’re growing at 60% or 70% or more. Will they accelerate? I don’t know.

I’m rolling with 5% NET and 1% FSLY and 0% LLNW.

Bear

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Bear,

This too is my problem with FSLY and NET. And, fundamentally, they both share what I consider an inherent problem with companies like CSCO and ANET. They’re all infrastructure plays. They all make widgets which are hard to differentiate from their competitors, and, as a result, it’s hard to predict their futures.

I’ve found, at least for me, it’s always better to invest in those companies which will benefit from the infrastructure being there than it is to invest in those who build it! NFLX was a better company to invest in 10 years ago than Amazon was (for AWS). Why? Because NFLX benefitted from the existence of AWS and didn’t have to build it themselves. UPS was a better company to invest in than any of the companies who built the highways and roads.

FSLY and NET are, fundamentally, infrastructure plays. They are creating “the way things will be done”. What I want to know is, what companies will most benefit from CDNs and edge-compute, and why? Then find the best of those and invest in them instead!

That being said, I do own some FSLY, and have been thinking about NET, despite this. But only because I don’t know of a better place to put my money right now.


Paul

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Stop that (j/k), you are making me worry just as I have bought my way into my first “grossly overvalued, fully priced” growth stock with NET. They all say it’s gonna tank, just like Fastly. It’s true that most recent growth was just below 50%, but from what I read they are firing with everything they got right now. From all the similar offerings, I ended up liking NET the best, personally.

I guess I’m in for some red months with this one, but business performance should be great in the future. Just a little much to ask for NET to rise any more this year I suppose. If only I had made my decisions a month or so earlier, but I always happen to be too late for dinner. I find it hard to really judge whether I’m sitting in the right boat here, since I didn’t leave myself much margin of error with this one.

Is it a case of great company, bad stock (already “priced in” for hypergrowth for years?). How do you determine that exactly, like metric-wise?

(OT question / maybe answer by mail or delete if inappropriate): Where is an appropriate place to get some portfolio advice or at least rough oppinion and not direct financial advice (composition, allocation)?

“I’m just not sure edge networks are able to differentiate themselves”

My counter to this is that they do not need to. There are a lot of use cases where the technology is better. They are not competing with the rest of the internet on an apples-to-apples basis. If you need an edge network you will know it and you will use it. Or you will use something with features you like and that thing will use it under-the-hood.

If, instead, you mean differentiate themselves from each other…well competition is fine with me. We’ve discussed on this board in the past that we don’t know if FSLY and NET will co-exist in the future or one will win out or one or both will get acquired. It doesn’t matter to me as long as the business is doing well until something changes that. To many here that day has come. To me this is all the same as it was 2 weeks ago. (I’m still waiting for my mind to change, with many great arguments recently in all directions. This isn’t information-paralysis, it is just me being on the look-out for something I feel really is fundamentally different today.)

“But NET is growing at under 50% and being priced like they’re growing at 60% or 70% or more. Will they accelerate? I don’t know.”

There’s the meat. Hopefully earnings bring some clarity. Otherwise I’ll just sit on my hands until something changes.

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<<priced in" for hypergrowth for years>> Just a thought but maybe they are priced in for minimal returns on bonds and most conventional companies,IOW most of the alternatives. QE money flows to where it is treated best.

Hello everyone, This is my first post here , I have been browsing this site for a month and finally I feel I can share something, I have the exact same concern from day one on both Fsly and NET . They are infrastructure company, compute, storage and network gear are Hard assets and capital intensive if we have to consider the lifecycle of those technologies. That’s a shortcoming comparing to pure software companies. Yes the future of those companies has a lot to do with 5G, but does that mean even more capital investment on infrastructure?

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Hello everyone, This is my first post here , I have been browsing this site for a month and finally I feel I can share something, I have the exact same concern from day one on both Fsly and NET . They are infrastructure company, compute, storage and network gear are Hard assets and capital intensive if we have to consider the lifecycle of those technologies. That’s a shortcoming comparing to pure software companies. Yes the future of those companies has a lot to do with 5G, but does that mean even more capital investment on infrastructure?

I agree, they are like web hosting companies of the late 90s/early 2000s raking in tons of money and I think they will become a commodity. It could be a great wave to ride though.

Bear wrote:

I have sold most of FSLY position and reduced my NET position. I’m just not sure edge
networks are able to differentiate themselves enough to really enjoy hypergrowth.

Paul wrote:

FSLY and NET are, fundamentally, infrastructure plays. They are creating “the way things will be done”. What I want to know is, what companies will most benefit from CDNs and edge-compute, and why? Then find the best of those and invest in them instead!

I was listening to a Beth Kindig interview, and in one segment, she discussed those issues in tech investing.

This is a paraphrase of what she said (typed while I was listening):

I understand that people see content edge network (CDN) as the route to edge computing. There is a lot of competition. It’s been competitive for 25 years. I look for really brand new markets. I’m looking for new use cases. I’m looking for people who will solve autonomous cars and robotic manufacturing where robots can communicate seamlessly so we can move manufacturing from China back to U.S. I’m looking for companies that are solving big problems, not for apps that can make Shopify faster because of where it’s hosted. To me that is an old market.

So Fastly is not as much a slam dunk as the market thinks.

This segment starts at 53:05 of the interview.

https://beth.technology/podcast-tech-growth-stocks-zm-roku-f…

Beth’s observation ties in well with what both Bear and Paul stated, especially the observation that we should look for companies that will benefit from CDN and edge-computing.

All the best,

Raymond

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<I’m just not sure edge networks are able to differentiate themselves enough to really enjoy hypergrowth.>

Bear, I think for every $100 a customer plans to invest in the public cloud ( AMZN, MSFT, GOOG), they intend to spend $5 to $10 of that on Security & $5 to $10 on in Edge. So about $20 on the higher side out of every $100. Isn’t that a huge huge opportunity in the years to come considering the move to the cloud is just beginning?

So, any Security & Edge solution provider that can differentiate itself should be setup for hypergrowth. Even if that market is shared by a couple of vendors, that should do well too.

Just some thoughts…

Cheers!

ronjonb

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Limelight is a point solution, “designed to deliver 1 solution”. They are not even in the same caliber as Cloudflare, inferior in many ways, smaller and with mediciore growth for a reason (just an example 100 POPs vs 200 POPs - which represents the number of allocations in which they are in), with lack of vision or visionary leader.

I would recommend if you have doubts to review the cloudflare investor relation presentation at:

https://cloudflare.net/home/default.aspx

Slide 15 gives you an idea how Cloudflare competes and provides a turn key solution against: Limelight, Cisco, Fastly, and a dozen other companies. Please, let me know if you see any other company that can claim that.

Cloudflare is both PaaS and SaaS (and SASE - like Zscaler) - they have build most of their own products using their own edge platform. I am not aware of any other company that can say that they are “making the internet better” and able to provide a better / turn key alternative to:

  1. traditional cloud hosting - being replaced with low latency high edge network (providing both bandwidth and compute saving, on top of quick response/low latency, better compliance/privacy, and increased security)

  2. Improved security by providing protection against DDoS - which will thrive with acceleration of 5G, IoT mass deployments

  3. Firewalls, VPNs, IDS/IPS, security gateway - all replaced by a single platform

  4. High performance / low latency solutions like: mobile site optimization, caching of dynamic and static content at the edge, smart routing, load balancing and fail over, compliant analytics platform

  5. Compliant solution allowing sensitive information to be hosted in specific geographic regions in order to meet regulatory requirements - which otherwise would not allow for these services to be hosted at the edge or in the cloud. Presence in 200 cities, including China (you can host content within China’s cloud providers or outside depends on your need).

This list can go on, but above in a nutshell are the most important elements of their offering.

What is commodity in my opinion is offering a CDN, however Cloudflare has never been a true CDN, most of their products offer CDN like advantages but they never seen themselves as a CDN provider and if you check their website and product description there are almost no references to the word CDN.

Cloudflare solves many big problems by simply following their own moto “making the internet better”, they are a platform, and are building service offerings on top of their own platform, others are able to do the same using their edge platform. It appears to me that Beth Kindig is not familiar or paying too much attention to what Cloudflare is doing, here statements will very much reflect a company like Akamai and your single purpose shop like KeyCDN/MaxCDN/etc.

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Cloudflare never intend to compete in CDN space, see below articulated by CEO Matthew Prince in :
"
We provide features like CDN and DNS for free to all of our customers. We will continue to implement this strategy; onboarding more customers onto our platform and capturing value from our highly differentiated products that, once using any part of Cloudflare’s platform, are only a click away.

Potential investors who are new to Cloudflare sometimes ask questions like: “What will you do if CDN bandwidth prices continue to fall?” We remind them we’ve given CDN away for free since Cloudflare launched in 2010, not because we were trying to disrupt the CDN space, but because the much more valuable products we provide our customers need a highly optimized global caching network to perform up to our standards."

https://blog.cloudflare.com/founders-letter/

Zoro

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Some great responses. I’ll especially call out Zoro’s because I agree Cloudflare’s strategy is a good one! All I’m saying is, show me the money! And by that I mean the growth rate. Cloudflare has just $349 million in total revenue the last 12 months. From CDN, security, workers, teams – everything. And yet growth rate has been less than 50%???

Also to Ron’s point: Bear, I think for every $100 a customer plans to invest in the public cloud ( AMZN, MSFT, GOOG), they intend to spend $5 to $10 of that on Security & $5 to $10 on in Edge. So about $20 on the higher side out of every $100.

Rough math, but it looks like the total revenues of FSLY + NET are maybe about 1% of public cloud. (FSLY + NET = about 650 million, and AMZN alone is at over 40b, so I imagine the total is at least 65b, and could be much higher.)

So if spending on FSLY and NET were going to ramp up from 1% to 20% of pubcloud spend, FSLY and NET should be growing much faster for now (maybe near-100%). I mean, Public Cloud is still growing at better than 30%! If FSLY and NET were on their way to capturing $10b or $20b or more, I would expect they would be growing 2x or 3x that fast.

So either the 20% number is way off, or FSLY and NET are only getting a small portion of it.

Bear

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