Edge cloud content delivery network
Fastly, Inc. NASDAQ: FSLY shares sold off with the
S&P 500 index NYSEARCA: SPY during the Q1 2020 pandemic plunge but managed to transcend its pre-COVID highs in May accelerating to all-time highs of $117.79 highs into Q2 earnings. The stay-at-home mandates drove the demand for internet capacity from content providers and developers making Fastly a clear pandemic benefactor. Shares have since pulled back nearly (-30%) off its highs after revealing that controversial social media platform TikTok was the Company’s single largest customer accounting for 12% of its 1H 2020 revenues. The ensuing panic reaction has pulled shares down closer to opportunistic pullback price levels that prudent investors may want to consider.
Q2 FY 2020 Earnings Release
On Aug. 3, 2020, Fastly released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS)profit of $0.02 excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.01), beating estimates by $0.03. Revenues grew 61.7% year-over-year (YoY) to $74.66 million versus $71.45 million consensus analyst estimates. The Company issued upside guidance for Q3 2020 with revenues between $73.50 to $75.50 million versus $72.21 million consensus estimates. Q3 EPS guidance was raised to (-$0.01) versus (-$0.04). Full-year 2020 revenues guidance was raised to $290 to $300 million versus $287.28 million consensus estimates with EPS between (-$0.06) to (-$0.01) versus (-$0.13) consensus estimates.
Signal Sciences Acquisition
On Aug. 27, 2020, Fastly announced its acquisition of Signal Sciences for approximately $775 million composed of $200 million cash and approximately $575 million in stocks. The deal is expected to close by the end of 2020. Signal Sciences bolsters Fastly’s web security products portfolio including developer-first web application and API protection solutions.
TikTok Controversy Resolved?
In the interest of U.S. security, President Donald Trump had issued mandates for social media platform TikTok to sell its U.S. operations to a U.S. company or be shut down in the U.S. On Sept. 20, Oracle Corp NYSE: ORCLannounced that the U.S. government has approved a tentative deal with TikTok parent company ByteDance to allow Oracle in partnership with retail giant Walmart NYSE: WMT to acquire 20% of the newly formed TikTok Global business. TikTok Global will be a U.S. headquartered company and launch an IPO in less than one-year. All U.S. data will be moved to Oracle’s cloud data centers.
Impacts to Fastly
Assuming China agrees with the terms, the initial thinking would be for Oracle to replace TikTok’s CDN deal with Fastly for their own CDN. However, with only a 20% maximum ownership interest in TikTok Global, they will have little operational influence with the minority stake not to mention how self-serving it would appear to be. Oracle’s cloud infrastructure can’t currently compete with Fastly’s CDN solutions. Additionally, Oracle already enjoys a profitable relationship with Fastly as a major client for their Dyn Traffic Director service. Since U.S. users of TikTok can continue to use the app, Fastly’s revenues from TikTok appears to be safe. This is all assuming that the deal gets China’s blessing and closes. While Fastly raised its Q3 and full-year guidance, the market may have been expecting Zoom Video NASDAQ: ZM type gains rather than the incremental ones reported as shares continue trade over 30X sales. Risk-tolerant investors seeking exposure in the edge cloud CDN industry should watch for opportunistic pullback levels in the coming weeks.
FSLY Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a near to mid-term view of the landscape for FSLY stock. The weekly rifle chart triggered a market structure low (MSL) buy above $19.78 back in April 2020. After peaking out at near the $117.31 Fibonacci (fib) level, shares sold off to coil twice off the $72.44 fib. Each bounce off that fib stalled the weekly stochastic oscillation down in an attempt to cross back up but failed. Each failure generates a stochastic mini inverse pup. The weekly rifle chart is now in a make or break situation that will resolve either with the weekly stochastic crossing up and forming a moving average (MA) pup breakout above the weekly 5-period MA area. The bearish alternative is for the weekly stochastic mini inverse pup to follow through on the downside as the weekly 5-period MA crosses down through the 15-period MA to provide opportunistic pullback levels at $78.06 overlapping fib, $72.44 double bottom fib, $68.56 fib and $60.27 fib. There are many price action catalysts but the TikTok deal is at the forefront to put investor uncertainty at ease in regards to the Company’s largest client.
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