Fastly, Inc.

FSLY Details

Fastly Completes Acquisition of Signal Sciences: Fastly, Inc. (NYSE: FSLY) is an American cloud computing services provider. As on 14 October 2020, the market capitalization of ~US$13.74 billion. The company retains decent fundamentals with strong demand for its products. The company has recently completed the acquisition of Signal Sciences, wherein the transaction will combine web application and API security solutions with Fastly’s edge cloud platform and existing security offerings to form a unified suite of modern security tools.

Alleged Securities Fraud Claims Against Fastly, Inc.: Berger Montague is investigating potential securities fraud claims against Fastly, Inc, wherein it alleges that FSLY failed to alert investors about its largest customer - ByteDance, who is an operator of TikTok. There was a risk that FSLY business would have been impacted if the U.S. government took any adverse actions against ByteDance or TikTok.

Quarterly Results (For the Period Ended 30 June 2020): For the second quarter ended 30 June 2020, the company reported strong growth of 62% in revenue to US$75 million and a net retention rate of 138%, up from 130% in Q1 2020. In the same time span, total customer count increased to 1,951 up from 1,837 in Q1 2020, reflecting the largest quarterly growth since IPO. Higher revenues and increasing customers resulted in an increase in gross margin from 55% in 1Q20 to 60.2% in the 2Q20. The company also reported a first positive EBITDA quarter, with adjusted EBITDA of US$7 million, up from an EBITDA loss of US$6 million for Q2 2019. The company ended Q2 2020 with a cash balance of US$454 million.

Quarterly Financial Highlights (Source: Company Reports)

Guidance: The company has provided guidance for the third quarter 2020, wherein it expects total revenue in the range of US$70 to US$71 million. Fastly will release its third quarter 2020 financial results after market close on 28 October 2020.

Stock Recommendation: Despite the structural and societal changes resulting from the global pandemic, the company won new customers, expanded its enterprise spend, delivered operating leverage, and bolstered its balance sheet. The stock of FSLY gave a return of 49.54% in the past three months and a return of 47.92% in the past one month. As per NYSE, the stock of FSLY is trading close to its 52-weeks’ high level and retains limited potential for further growth. The company is also facing a lawsuit and may face uncertainty in the near term. On a TTM basis, the stock of FSLY is trading at a price to book value multiple of 5.7x, higher than the industry median (Technology) of 2.4x and thus seems overvalued. On a technical front, the stock of FSLY has a support level of ~$113.55 and a resistance level of ~$133.85. Considering the current trading levels, decent returns and the lawsuit, we recommend our investors to wait for a better entry level and suggest an ‘Expensive’ rating on the stock at the current market price of US$123.18, down by 4.39% on 14 October 2020.

FSLY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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