Fastly Stock Falls After Reduced Q3 Guidance

Fastly stock fell rapidly after the company reduced its guidance for the third quarter of 2020. By early morning on Oct. 15, the share price had fallen almost 30 percent, according to CNN Business.

Fastly is a CDN (content delivery network) and edge cloud computing company founded in 2011. Fastly's largest company, ByteDance, owns TikTok, which President Trump has been attempting to ban in the U.S. 

Joshua Bixby is Fastly's CEO. Its products and services include its CDN, edge cloud platform, image optimization, video and streaming, and cloud security. Some of Fastly's largest customers are Slack, Airbnb, Spotify, and Yelp.

On Oct. 14, Fastly announced a 5 percent reduction in its third-quarter revenue guidance. The previous guidance indicated an expected revenue between $73.5 million and $75.5 million, while the new guidance projects $70 million–$71 million for the quarter that ended Sept. 30. 

The company’s lower revenue is partially tied to TikTok and the Trump administration’s threat to ban the app in the U.S. However, there may be multiple factors at work. Reduced usage by ByteDance is one reason for the decreased revenue guidance.

Despite the setback, Fastly has benefited from the higher demand for Internet services throughout the COVID-19 pandemic. TikTok also saw increased downloads during COVID-19 lockdowns, according to The Wall Street Journal. 

When the second-quarter results were announced, Fastly CEO Joshua Bixby said that about 12 percent of its revenue came from TikTok for the first half of 2020 and less than half of that was from the U.S. 

In August, Bixby noted the potential of lost revenue that would result from a TikTok ban. According to CNN Business, he said, “While we believe we are in a position to back-fill the majority of this traffic in case they are no longer able to operate in the US, the loss of this customer's traffic would have an impact on our business.”

A deal involving Oracle and Walmart has been proposed to make TikTok a U.S.-based company. The deal would address some of the security and privacy concerns about the app. 

Fastly stock likely declined due to uncertainties surrounding TikTok and the Trump administration’s ban on the app. Also, there was lower-than-expected usage of the app in the third quarter, according to The Motley Fool. 

Instagram launched its competing short-video sharing platform Reels, which might have impacted TikTok’s traffic during the third quarter as well. 

Fastly stock closed at $89.70 on Oct. 15. The previous closing price was $123.18. In pre-market trading, as of 9:16 a.m. ET on Oct. 16, the price was at $91.31 per share. 

The company advised investors to “disregard” the previous guidance for fiscal 2020. Fastly still expects revenue growth between 40.6 percent and 42.6 percent in the third quarter, according to The Motley Fool. 

Bixby referenced Fastly's recent $775 million acquisition of Signal Services, which is an app security company. The revenue from Signal Services will be included in the company's fourth-quarter guidance. 

Fastly's third-quarter results will likely be released on Oct. 28.