Boutique internet and colocation provider Internap Network Services (NASDAQ:INAP, news, filings) reported earnings after the bell. Revenues of $64.2M were down sequentially from the third quarter‘s $65.4M, and a bit lower than expected. IP services revenues came in light at $30.1M and CDN services declined a bit as well, partially offset by the usual increase in colocation revenue. As a result, for the full year the company grew revenues by 8.5%, just missing its 9-13% growth projection. Given the extent of the economic mess, I did not expect Internap to see growth this quarter and hence I wasn’t surprised. As a high end provider to mid-sized web-centric companies, Internap has a customer base that is more sensitive to this environment. The pendulum has swung toward cost cutting and away from the service and reliability they specialize in.
In parallel, EBITDA of $9.2M was also down from $10.0M in the third quarter, although this was inline with guidance of 11-15% of revenue for the year. Earnings per share was $0.03 for the quarter and $0.12 for the full year. All in all, 2008 is probably a year that Internap would like to forget. It began with the fumble of the Vitalstream integration, and just when they seem to have picked up the ball this economic storm blew in.
What to expect for 2009? Despite a rough 2008, the Internap has plenty of cash and little debt, and remains profitable and cashflow positive. The extra 17,000 square feet of space the company built out in 2008 should give them room to grow colocation revenues while capex declines. With a newly minted CEO, I think we can expect a combination of cost cutting and new product initiatives, but the headwinds will be fierce for a while yet. Will they finally start to unlock the potential of their underperforming CDN business and build on the resale deals with Reliance Globalcom and Pacnet? No idea.
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