Remember John Lennon's Impact on the Media Sector

John Lennon is arguably one of the greatest musicians of all time. He gained significant worldwide fame as the frontman for the Beatles, and had a successful solo career as well. Despite having his ups and downs, Lennon became a proponent of world peace and advocated sedentary lifestyles in exchange for natural happiness. This was reflected quite often in his music as well.

Back in his time, Lennon and the Beatles only gained revenues via concerts and album sales. Back then, album sales had limited distribution compared to what's available today. Today, content can be distributed digitally, whether it is through websites, radio stations, blogs, hosts like Youtube, or social media networks. All of these mediums present different revenue stream potential.

It is more important today than it has ever been for artists to find distributors who can actively and efficiently market their work. One company that appears to fit this category is Limelight Networks LLNW. LimeLight is a small-cap company that delivers content including music, video, and software in the quickest possible manner via the internet.

Like other services, LimeLight networks provides on-demand music and video along with content management services. It also takes its services a step further by providing content on mobile devices as well as cloud storage spaces. If these services were available when the Beatles were popular, they may have been even more popular than they were.

Regardless, investors need to know why or why not LimeLight would be a good investment. Over the last several years, LimeLight has bolstered its revenues, steadily increasing despite market uncertainty. It has also managed to increase margins significantly over the last several years. In light of improved sales and retention, LimeLight has ramped up research and development spending along with salaries and marketing expenses.

However, these expenses have had a detrimental impact on the company's overall earnings, as operating margins have traditionally been negative. Investors may not like this fact, and it seems plausible that the company could somehow revamp its expense structure to prevent negative margins. As is expected, interest and taxes do not help the company at all, and it traditionally makes net losses year over year. On a more positive note, LimeLight has managed to decrease the net loss every year, and may eventually become a profitable company.

Interestingly, the company's cash flows are a bit more positive. Its operational cash has been fairly volatile over the last five years, but the activity can be attributed to the market downturn in 2008 and 2009. However, operational cash influxes have resulted primarily due to stock-based compensation and positive changes in working capital. Investors should look at this with a grain of salt, because working capital increased as current liabilities increased.LimeLight Networks has also continuously purchased investments, perhaps to hedge themselves against market activities. It has also pursued some asset purchases in past as well as consistent capital expenditures. Lastly, it has not issued much debt or equity in recent years.

Overall, cash and current assets have decreased fairly significantly, except for receivables. This may or may not mean that LimeLight is having problems collecting owed money. Property, plant, and equipment have increased each year as well. Debt has been pretty minimal as the company has not accrued short-term or long-term debt. It has, however, bumped up its accounts payable significantly. Ultimately, the company's return to shareholder has been somewhat volatile. Retained earnings decreased from 2009 to 2010, but the 2010 is still better than it was in 2008.

Investors need to understand that the media industry is saturated with competitors, so not every company can be perfect. LimeLight networks offers many products and services, but has somehow not been financially successful in the last couple years. While there is promise in the future, investors may have some questions about an investment right now. Perhaps the company could sacrifice some of its offerings to focus on its most profitable services. It may also benefit from reducing salaries or headcount. Ultimately, these sorts of services my have been beneficial in the past for bands like the Beatles, but it has to quickly adapt for the future of content sharing.

LimeLight Networks is currently trading at about $2.99, down over 48% for the year.

• Long LimeLight by purchasing shares or call options. LimeLight currently appears to be close to a technical support level, so now may be a good time to buy.

• Short another similar company, like Rackspace Hosting RAX. You could short this company to hedge a long LLWN trade or to accentuate your belief that LimeLight will dominate the media distribution market

• Long an ETF like the Technology SPDR XLK. If a significant industry like media is doing well, technology itself will probably do well.

• Short LimeLight after it breaches the $2.90 level, which appears to be a technical support level. The next support level appears to be at about $2.70 or $2.60.

• Long a competitor like Akamai AKAM, as someone bearish on LimeLight may believe that a large-cap competitor is more likely to garner market share.

• Buy put options as LimeLight Networks' earnings announcement comes along. The company may not be able to sustain its costs as precious metals rallied significantly in Q3 2011