Why I bought LLNW

LLNW reported Q2 earnings after the close today.


Just three months after boosting its 2020 revenue expectations, the company’s again raising them, to $230M-$240M. It continues to guide to non-GAAP EPS of break-even to $0.10, and is raising expectations for adjusted EBITDA to $28M-$35M.

Revenue of $58.54M (+27.5% Y/Y) beats by $1.82M

It’s not widely held or followed by the board but I know a few of us are watching it and it seemed fitting to update the thread.
The company seems to be moving in the right direction.


Revenue growth is down sequentially (32 to 28) during what I would think should be a period with some tailwinds.

They grew gross margin by 400 basis points which is nice but I noticed their active customers was down sequentially 2% or so and down 10% YoY which is concerning. Their revenue guidance was pretty meh.

I haven’t had a chance to read the earnings transcript but nothing in this report makes me think that this company is going to have huge multiple expansion in the coming weeks.

I’m long options only but pretty disappointed with this report.

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Bear, why invest in mediocrity (at best) when we have two incredibly innovative companies with exposure to the same industry that are actually disrupting the incumbents?


I was doing some additional research and I remember having invested in Bandwidth ($BAND) at one point last year due to their lower P/S ratio with the hope of some multiple expansion and it looks like it did double its P/S valuation (I sold well before this happened, unfortunately) which resulted in a double in the stock price. I do think $LLNW has an opportunity to double its P/S which would effectively be a double in their share price, but it’s hard to say if it will. I already own a big position in $FSLY and at least upon reflection, it does seem more realistic that $LLNW hits ~$16 before $FSLY hits ~$180 in the short-term just given the multiple expansion $FSLY has seen in recent weeks.

Do I think $FSLY is a better buy for the long-term, yes, but based on how crazy this market is, $LLNW does seem to have some potential given some of the potential secular trends we’re seeing due to COVID. I plan on holding on for now, given $LLNW’s strong partnerships, but I’m still disappointed by the ER.

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A couple of snippets from the earnings call could shed some light about this quarter and the future.

The first:

“And so we like the long-term trend of the business, but it does make it tough in the short run when you’re trying to decide what should the guidance be. Just to bring it home with an example, we don’t know for – is the NFL going to have a full schedule? There’s a lot of unknowns and we’ve always said, for example, when it comes to live events that any one individual event, even one as big as a Super Bowl, isn’t that material from a revenue perspective. But when you string them all together, all over the world every day, it is a material part of our business. And right now, that was zero in Q2.”

If content isn’t being generated, revenue does not come.

And the second:

Analyst -
"…[C]an you elaborate on the interest you’re seeing around EdgeFunctions, what sort of use cases or applications or customers’ beta testing right now?

Bob Lento – Chief Executive Officer

We have not gone for general availability. So GA will happen closer to the end of August, I believe but, for sure, within the quarter. And typically, what people are doing with EdgeFunctions are cases like watermarking, ad insertion, things where you can spin them up, you need it for literally milliseconds to seconds. And then the function sort of goes away as opposed to us serving up an application that may live for hours or days or longer.

And so we’re seeing some very interesting use cases where when you try to do those functions in the cloud, the latency gets in the way of effectiveness. And so while edge serverless compute is sort of a horizontal offering, the use case is that we are focused on are very much video-centric, and we’re seeing our customers find value in a lot of different ways for video delivery, including things as simple as A/B testing, and it’s complex as ad insertion, watermarking, and other things like that."

Rolling this out will be an interesting experience for content providers. I’m curious how they will monetize it. This is a use case for similar capability in FSLY.