IP and colocation services provider Internap Network Services (NASDAQ:INAP, news, filings) reported earnings today, and made some changes that give us a much better idea where new CEO Eric Cooney will be taking the company. Revenues for the second quarter were $64.4M, the first sequential increase in three quarters and slightly above expectations. IP revenues held steady, while colocation revenues were the engine of growth. EBITDA of $6.8M was also a sequential improvement. Considering the economic environment out there, it was not a bad quarter.
Of course, earnings themselves were dragged down by a further writedown of $55.6M for the company’s struggling CDN assets. In addition, Internap will now be reporting revenue for only the IP and colocation segments, absorbing the CDN activities and no longer treating them independently. That doesn’t mean that the company is abandoning the CDN market entirely, but it does strongly imply a change in focus away from that market. In other words, Internap probably isn’t going to be a major CDN player any time soon and certainly wishes the Vitalstream acquisition never happened.
So what will they be focusing on? Colocation of course! Internap announced it will be spending another $50M to expand its colocation footprint over the next 18 months. They will fund it out of organic cash flow rather than try to raise money in the capital markets, and $50M is just about all the discretionary cash they would have to throw at any project. The colocation market is of course hot with long term demand more than healthy, whereas the IP transit market is struggling and the CDN market is very competitive right now. It’s a choice that is both natural and decisive, just the sort of thing a new CEO likes to do.
Will it work? I suppose we can’t answer that without first defining the goals. These days, nobody is trying to shoot the moon, just find a path back to reliable growth. For that, it seems like a good plan.
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