August 9, 2007 / 2:27 PM / 11 years ago

RPT-UPDATE 2-Limelight sees bleak third quarter; shares dive

(Repeats without change to headline or text) (Recasts; adds comments from CEO, analysts; updates share movement)

By John Tilak

BANGALORE, Aug 9 (Reuters) - Investors punished Limelight Networks Inc. (LLNW.O) after the company forecast a weak current quarter, citing seasonality and pricing pressure, even as it broke even in the second quarter.

Shares of the company, which provides digital content for traditional and emerging media companies, tumbled nearly 40 percent in afternoon trade. Earlier Thursday, they touched their lowest levels since the stock’s market debut in June.

“The summer’s seen a seasonal softness associated with large television and media customers,” Chief Executive Jeff Lunsford said by phone.

Tempe, Arizona-based Limelight shares have plunged 34 percent since its IPO before Thursday’s losses as the company wrestles with rivals Akamai Technologies Inc. (AKAM.O) and South Korea-based CDNetworks Co. Ltd. 073710.KQ.

The companies seek to go one up on each other in the content delivery network market, which, according to market research firm Frost & Sullivan, is expected to be worth about half a billion dollars in 2007.

For the latest third quarter, Limelight expects a loss of 4 cents to 6 cents a share, excluding certain items, versus market expectations of a loss of 1 cent a share, excluding items.

“If you’re not hitting expectations, the market’s going to be swift and severe with you,” Morgan Stanley analyst Peter Kuper said by phone.

RACE GETS HOTTER

The weak outlook also factors increased spending as the company is continuing to invest in sales and marketing to cope with an increased customer base and record bookings.

Late July, Akamai shares lost a quarter of their value after the market leader reported a drop in gross margins and said it plans to step up spending.

Morgan Stanley’s Kuper said Akamai and Limelight were getting more aggressive on pricing.

Pricing is a function of Internet providers being slow to monetize content and not willing to pay high prices for delivery as opposed to a significant shift in the competitive landscape, Goldman Sachs analyst Sarah Friar wrote in a research note. CDNetworks is sniping at Limelight’s heels and said in July that it is well positioned take the second spot in the race to supply so-called content delivery networks used to speed up Web services. “The market’s getting more competitive, especially on the pricing front. That’s the biggest takeaway,” Piper Jaffray analyst Aaron Kessler said by phone.

BREAK-EVEN QUARTER

For the second quarter, excluding items, Limelight broke even on revenue of $24.7 million.

Analysts were looking for a loss of 8 cents a share, excluding items, on revenue of $24.1 million.

In the quarter, the company added 149 customers, its highest ever, to lift its customer base by 20 percent to 876 customers, CEO Lunsford said. He noted that bookings doubled from a year ago.

Limelight’s customers include Microsoft Corp. (MSFT.O), Britain’s free-to-air broadcaster ITV Plc (ITV.L) and online video provider Akimbo Systems.

Shares of the company were trading down $5.68 at $9.12 in late afternoon trade on the Nasdaq. (Additional reporting by Shikhar Balwani)

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