Why is Fastly worth 10x what Limelight is?
I have a pretty straightforward question I am trying to answer.
I was listening today to this podcast interview with Fastly CTO Tyler McMullen when it occurred to me – why is Fastly worth 20x sales when Limelight is only worth 2x sales?
Actually more. Fastly trades at 26x sales. Limelight trades at 1.9x sales.
I do understand that Fastly is a better company. They are clearly growing much faster. They have far higher gross margins. They have a developer oriented product that is geared toward edge deployment of apps, whereas Limelight seems like more of a plain vanilla content delivery network.
But here is the thing that has me thinking. On their Q3 call Limelight said they weren’t able to close on one of the big deals that they had anticipated because of geopolitics:
In the July call, the customer that we were hopeful that we were on the 1-yard line of closing it, actually hasn’t closed and may not close until middle of next year due to some geopolitical things that have gone on with this company. So that’s the bad news.
So… that customer is likely TikTok. And it is too bad they didn’t close, it would be a big win for LLNW. Hopefully it still happens once the dust settles.
But the bigger point for me is this – we already know that Fastly had a Q3 miss because they lost the TikTok business. TikTok is like their biggest customer – something like 13% of revenue.
So how does LLNW steal away TikTok if Fastly is so much better than them?
Look, I’m sure Fastly has a better product than Limelight. I’m going to dig into this in the next few days and figure out just how much better. But I’m a little skeptical its more than 10x better.
Limelight is down a pretty ridiculous amount in the last two days because their last quarter was – meh. And actually, it was better than meh, but they had bad gross margins which analysts have focused on and that seems to have led to everyone to sell the stock like this is an oil company.
Limelight has subsequently said that the margin miss was in large part due to one customer that didn’t deploy as much as fast as they had expected. What I heard on the call is that this will right itself and that the business is sound.
I realize the Limelight business is not perfect. They have competition. They have margin pressure.
But the stock is down to the level of the COVID bottom. This for a business that delivers video content – I mean does that not have to be one of the few legit areas of growth?
Something seems mis-priced here to me.