In a filing last week, internet solutions provider Internap (INAP) finally admitted what everyone already knew, that it paid too much for Vitalstream, and said they would write off some $99.7M in goodwill. That their entry into the CDN business via M&A and subsequent integration fiasco have done serious damage to shareholder value really can't be questioned. The exact number to write off, of course, is more about art than anything else. Sure there are rules, but with so many assumptions about future growth etc it is very easy to come up with wildly different valuations. If they write off too much, they look like they think their CDN has no value. If they write off too little, they'll be asked every quarter when they will write off the rest. $99.7M is as large as possible without being quotable as hundreds of millions, I doubt that is a coincidence.
Contentinople called it 'more bad news', but it wasn't actually. It was merely the same old bad news, but then double- or even triple-counting bad news is par for the course this fall, stocks being punished by worries they will miss expectations due to the economy and then punished again when they do. I like Rayburn's 'closing the door' analogy better. Internap really needs to put this behind them and get back to doing what they do best: high end internet services to web-centric companies not large enough to justify running their own networks. Does their $99.7M writedown do the job? Probably, assuming they have their act together this time.
But where does Internap's CDN go from here? Its revenues have stagnated, and one could argue that their customer base is more at risk from the credit crisis than most. Akamai (AKAM) pointed to their lack of exposure to 'newfangled' web2.0 companies as a reason the downturn would hurt other CDNs more, it would seem that Internap might have more of that exposure, e.g. the recent wins at YOUniversityTV and Beautiful Strangers and several deals in september. But just because Akamai says so doesn't mean it will happen that way, Internap reports earnings on Thursday so we'll get to hear more on how their niche is faring during this financial meltdown then.
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