It’s time to set the record straight with Fastly stock because Twitter doesn’t have answers.
Let’s talk about the wild ride that has been Fastly stock lately:
It has soared in 2020, hitting all-time highs of $128.83 in October — a 500% jump year-to-date (YTD) — before it dropped 50% in just 2 weeks. However, it rose 33.5% in November and has continued to climb, sitting pretty at $97.98 per share today, up 355% YTD.
Quite the roller coaster indeed. And then, last week, rumors emerged from Street Insider that Cisco might be considering an acquisition of Fastly, fresh off the back of Salesforce/Slack excitement.
The market has been all aflutter since, though absolutely no base has been given to these rumors. Finally, a Fastly spokesperson addressed the issue last night, giving an infuriatingly ambiguous response:
“We decline to respond to current speculation and have no additional commentary at this time”.
So, what does this mean for Fastly investors?
Every few months it seems that a new stock is chosen by the Twitterati as the stock of the moment, sending its shares soaring based on hype.
While I’m not saying that Fastly is a bad investment, there are a lot of question marks around its price:
- The company is valued at about $11 billion, or about 40 times the high-end of its revenue guidance for 2020.
- Growth is slowing, with sales expected to jump 25% in Q4, compared with 42% growth in Q3 and 34% in Q2.
- It is heavily reliant on revenue from TikTok, which has staved off being banned in the U.S. for now but could be cause for concern in the future.
- The company also reported lower-than-expected platform usage from customers back in October.
- Fastly’s gross margin was just 58.5% in Q3.
That being said, Fastly’s fundamentals are still strong, with future-relevant companies like Slack, GitHub, and Shopify all using Fastly’s cloud services. Management and engineers at Fastly have taken a forward-thinking approach to the design of the platform, looking at the technological needs of tomorrow instead of today.
However, investors should not be basing any decisions around a possible Cisco acquisition — a rumor with no base — and should instead focus on Fastly’s fundamentals.
With communications and commerce increasingly moving to digital channels, demand for edge-computing services looks primed for substantial growth over the next decade and Fastly has a leading position in the space. With that in mind, the stock probably isn’t a great fit for risk-averse investors.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.