Profit from the Generation Y-New Media Connection

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Jun 25th, 2009 | By | Category: Featured, Penny stocks, Technology
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Newspapers and nightly television news programs are as good as dead. A study performed by Drs. Reynol Junco and Jeanna Mastrodicasa found that Generation Y (born between1981-1992) gets 34% of its news from the Internet, compared with only 11% from newspapers.

Web sites like Digg and The Drudge Report are sending more people than ever to Internet news sources – everything from small independent news organizations, blogs and video feeds to traditional media outlets like The New York Times and CBS. News is only a fraction of the story, though.

According to CBSSports.com, 7.52 million visitors watched some of the NCAA men’s basketball tournament online this year. That turned out to be 8.6 million hours of video and audio. These numbers represent a 58% growth in visitors and 75% increase in total hours watched/listened to.

No other media source can claim that kind of growth. Online media is booming, despite our flailing economy. Monetizing it can be tricky, but most media conglomerates know that it’s too important a part of the growing market to pass up.

You can watch the majority of network television on the Internet now. You can also watch live news feeds from many cable providers. Web sites like YouTube and Hulu are tearing this generational gap wide open.

Those two combine for about 141 million unique visitors per month – many from Generation Y.

In relation to this growth is the problem of actually transmitting these videos. Google, which owns YouTube, is dealing with astronomical costs on its bandwidth. Hulu, which is doing slightly better, is still burning cash every month. Most others, like NBC.com, CBS.com and CNN.com, are outsourcing their video problems. That’s where the real money is.

The search for companies that can handle the massive amounts of video in one cost-effective and high-quality bundle is on. While this field is still highly competitive, one small company is starting to emerge…

Providing Everything from Oprah to the Super Bowl

Limelight Networks Inc. (NASDAQ: LLNW) is a content delivery network (CDN) provider for some of the largest media companies in the world. Its customer list contains the likes of MSNBC, Disney, Netflix and Fox… to name a few. Its No. 1 customer, making up 17% of revenue, is Microsoft, which is desperately trying to compete with Google on every front (including YouTube).

Limelight’s contracts with these customers have included all kinds of widely watched events such as the Beijing Olympics, the Super Bowl, President Obama’s Inauguration and even Oprah’s Book Club.

These contracts have helped Limelight’s top line grow 508% over the past three years. But a quick glance at the company’s most recent income statement is a bit misleading.

You see, Limelight has been tied up in litigation with one of its top competitors, Akamai Technologies, over patent infringement. This battle has been waging since 2006, but recently, a court ruled in Limelight’s favor. This ruling saved the company $65.6 million.

The company had this money set aside in case of an unfavorable ruling. In the most recent quarter, this money was released back to the company’s balance sheet, which makes it look like Limelight turned a $55.1 million profit. The real number is more like a $10.5 million loss – still better than previous quarters.

Not the Right Time to Strike…Yet

Investors responded to this announcement quite favorably. Shares are up 47.5% since the ruling and 114.3% on the year. That’s the major reason we aren’t ready to pull the trigger on this one just yet. This run-up was a bit too much too fast. We expect a correction in share prices on the way.

Another worrisome area is the company’s small profit fortress. This industry is extraordinarily competitive. YouTube and Hulu aren’t direct competitors, but companies like AT&T, Level 3 Communications and Akamai are.

We recently put Limelight on our Penny Stock Fortunes watch list. This industry is consolidating right now, so we may see a buying opportunity at any moment. We’ll tell readers when that happens.

Sincerely,
Jim Nelson

June 25, 2009


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Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

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3 comments
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  1. [...] Original post by Penny Sleuth [...]

  2. [...] Profit from the Generation Y-New Media Connection [...]

  3. you mean millenials i’m not sure if gen-y is in existence

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