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.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.