Limelight, Level 3 Soar on Netflix Report

Shares of Limelight Networks and Level 3 are soaring this morning on a reports that Netflix has shifted a larger chunk of its streaming video delivery business to the two companies. CDN industry watcher Dan Rayburn reports that Netflix is cutting back its use of Akamai's content delivery network for streaming video and shifting traffic back to Level 3 (LVLT) and Limelight (LLNW). Shares of Limelight surged 27 percent in early trading Tuesday, gaining $1.84 to $8.44 a share, while Level 3 shares were up 16 cents to $1.04, a gain of 18 percent. UPDATE: Level 3 shares were briefly halted after plunging to 49 cents, but later resumed trading back at a range of $1.06 to $1.08, suggesting erroneous trades.

CDN market leader Akamai (AKAM)  saw its shares decline about 5 percent, sliding $3.58 to $51.56. "It’s no secret that Netflix has a multiple vendor strategy," Akamai told Rayburn in an email. "We continue to have an ongoing relationship with Netflix but we don’t comment on the specifics of customers, contracts or other providers."

In early 2010 Akamai reportedly gained at least 51 percent of Netflix traffic by becoming their primary CDN.  Level 3 recently announced that it added 1.65 Tbps of capacity to its CDN in the third quarter and added five new network locations, including two in Canada. In the third quarter earnings call for Limelight, the company announced that Netflix had extended its contract for another three years. Limelight does not have CapEx plans for expanding its CDN, while Level 3 will spend $14 million in CapEx in just the fourth quarter.

See Rayburn's story at the Business of Online Video for more details.