Posted by : Randy Cooper in (CDN)

Internap Taking a Snooze?

Being a small player in a competitive industry, Internap Network Services Corporation (INAP) has a relatively low revenue growth rate. Although the company has been gaining traction in its data colocation services, it is witnessing softness in its content delivery network (CDN) business.

Much of this has been caused by the weakening economy, which has forced INAP to trim its 2008 guidance twice. Though the company has been making important upgrades to its CDN product, there has been a lackluster performance in the segment in the last few quarters. As such, we maintain our Sell rating on INAP with a price target of $2.50.

Shares of INAP are currently trading at a multiple of 29.3x our estimate for the next four quarter earnings per share, which is at a premium to peer group mean. The company’s 2008 guidance further aggravates the situation as top-line growth is not expected to grow meaningful over the next two years. At the same time, we are hard pressed to see real earnings growth. Using a P/E multiple of approximately 20.8, our fiscal year 2009 EPS estimate of $0.12 yields our $2.50 target price.



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