Why Limelight Networks Stock Crashed on Friday

What happened

Shares of Limelight Networks (NASDAQ: LLNW) crashed on Friday, following the company's mixed third-quarter earnings report. The stock of the expert in content delivery networks fell as much as 29.6% in the early morning, recovering to a 27.4% drop as of 10:38 a.m. EDT today.

So what

Limelight's sales rose 15% year over year to $59.2 million. Adjusted earnings swung from a $0.01 profit to a $0.01 loss per share. Your average analyst expected earnings near $0.02 per share on revenue in the neighborhood of $58.9 million.

Management also lowered the midpoint of its full-year earnings guidance from $0.08 to $0.06 per share while leaving the top-line target unchanged at approximately $235 million.

A dollar bill folded into an arrow pointing downward.

Image source: Getty Images.

Now what

This sharp drop in share price looks like a knee-jerk reaction, as if investors were looking for an excuse to lower Limelight's soaring stock price. It was trading 51% higher year to date by the closing bell on Thursday; after today's plunge, the stock was brought back in line with the S&P 500's 7% gain in 2020.

Keep in mind that Limelight's actual business results met every expectation. The bottom-line miss was a direct result of taking on some long-term debt during the quarter. Interest payments on the $106 million of net proceeds from July's sale of convertible bonds lowered both the third-quarter result and the full-year guidance target by approximately $0.03 per share.

None of the additional funds have been used yet, but the boosted cash reserves may give Limelight the flexibility to increase its infrastructure investments, make a small acquisition, or try other new ideas that had been out of the company's financial reach.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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