Why Edgio Stock Popped Today

What happened

Shares of Edgio (EGIO 20.64%), the edge-computing company formerly known as Limelight Networks, was surging today after it reported better-than-expected results in its second-quarter earnings report. The stock closed up 20.6%.

So what

Edgio, which was formed after Limelight acquired Yahoo’s Edgecast, reported 54% revenue growth in the quarter, or 27% organic growth, to $74.3 million, well ahead of estimates at $63.5 million. It was the third-straight quarter of double-digit growth for the company, a sign that it’s capturing market share, according to management.

Gross margin increased from 19.5% to 30% as the business scaled against fixed depreciation costs for its network. However, overhead costs ballooned, due in part to the acquisition, with its employee count almost tripling to 1,317. Customer count also nearly doubled to 1,000 after the acquisition.

On the bottom line, the company reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $352,000, compared to a profit of $227,000 in the quarter a year ago. Also, its GAAP per-share loss of $0.11 was worse than the consensus for a $0.03 loss.  

CEO Bob Lyons said: “We continue to successfully execute on our multi-year transformation plan. In the past 12 months, we have completed two acquisitions, overhauled all aspects of our operating model, removed significant costs, and implemented a new growth-oriented commercial team.”

Management also said it had achieved $17.5 million in synergies so far, ahead of schedule, and it’s now expected to achieve $60 million in cost-saving synergies, up from its previous target of $50 million.

Now what

Adjusting its guidance for the acquisition, management now expects $380 million-$390 million in revenue this year and adjusted EBITDA of $13 million-$16 million. For 2023, it gave initial guidance for revenue of $550 million-$560 million and adjusted EBITDA of $65 million.

The strong 2023 forecast likely explains the cloud stock’s pop today, as shares are now trading for less than 12 times 2023 EBITDA, based on that forecast.

Jeremy Bowman 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.

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