Fastly stock drops 20% as analysts weigh in on how TikTok may affect the edge-computing platform’s growth


Fastly Inc. shares pulled back from their recent lofty heights Thursday, as analysts weighed in on how the popular video-sharing platform TikTok will affect the edge-computing platform’s growth as more businesses migrate functions to the cloud.

Fastly
FSLY,
-16.24%

shares fell as much as 21% Thursday, and were last down 17% at $90.40, on volume of more than 23 million shares, compared with a 52-week average daily volume of 3.4 million shares.

Late Wednesday, Fastly reported quarterly results and an outlook that topped Wall Street estimates, but revealed that TikTok was the company’s single largest customer, accounting for 12% of revenue. Fastly is a so-called “edge-based” cloud-computing platform that allows developers to get the best possible performance from their applications.

TikTok has come under fire from President Donald Trump, who has suggested banning the service as a national-security risk because of ownership by the Chinese company ByteDance. Trump has also suggested that the U.S. Treasury should get a cut of the purchase price if TikTok is acquired by Microsoft Corp.
MSFT,
+0.90%
.
Also of note, organized TikTok users were credited with helping to wildly inflate attendance expectations of Trump’s ill-attended Tulsa, Oklahoma rally back in June.

Even with Thursday’s drop, Fastly shares have soared 324% from their opening on the New York Stock Exchange in May 2019, with shares skyrocketing 294% in the past three months. In comparison, the tech-heavy Nasdaq Composite Index
COMP,
+0.64%

has gained 25% in the past three months, and the S&P 500 index
SPX,
+0.36%

has risen 17%.

Oppenheimer analyst Timothy Horan downgraded Fastly to perform from outperform and said TikTok was a “major risk” to the elevated stock price.

“A TikTok ban in the U.S. could prevent FSLY from hitting 3Q/FY20 guidance,” Horan said. “TikTok is FSLY’s largest customer and is likely ~15% of revenues in 1H20, with about half that generated in the U.S. We do think a TikTok/ MSFT deal is far from certain, and long-term MSFT could move TikTok delivery on its own edge infrastructure.”

For the third quarter, Fastly forecast an adjusted loss of a penny a share to net income of a penny a share on revenue of $73.5 million to $75.5 million. Analysts, who had previously forecast a loss of 4 cents a share on revenue of $72 million on average, now expect earnings of a penny a share on revenue of $74.8 million.

Read:Facebook’s TikTok rival comes as Chinese company’s future is in limbo

William Blair analyst Jonathan Ho, who has an outperform rating on the stock, said weakness could make a good entry point given its recent performance, even with a possible U.S. ban of TikTok.

“Third-quarter guidance calls for sequentially flat revenue growth, which appears conservative but also reflects some unknowns around TikTok and continued COVID-19-driven demand as global economies reopen,” Ho said. “Fastly remains a stock we would want to own given broader themes around digital transformation and edge compute, and we would take advantage of weakness in the shares.”

Raymond James analyst Robert Majek, who rates the stock as market perform, said TikTok “remains a double-edged sword” for Fastly.

Majek said one “area of perceived softness” in Fastly’s results was slowing growth in its large enterprise customers, which could reflect a COVID-19 related pullback in spending, but noted the addition of a very significant customer.

“We note that the gross adds included one very meaningful customer, Amazon
AMZN,
+0.55%
,
which we believe is using Fastly to deliver ~90% of its image content across the 20 global cities we tested,” Majek said.

Stifel analyst Brad Reback, who has a buy rating and hiked his price target to $98 from $30, noted that while 12% of Fastly’s revenue came from TikTok, half of that came from outside of the U.S., and that digital transformation trends, prompted by COVID-19 adaptation, would drive more organizations to “re-platform their applications” using Fastly.

“The banning of the app in the US would create short-term uncertainty around Fastly’s revenue contribution from ByteDance; however, management believes it has the ability to backfill the majority of this potentially lost traffic,” Reback said.

Of the 11 analysts who cover Fastly, five have buy or overweight ratings, four have hold ratings, and two have sell ratings, and an average target price of $93.25, according to FactSet data.



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$30 to watch ‘Mulan’ on Disney+ is either outrageous or an amazing deal, depending on who you ask


Disney’s decision to release its live-action “Mulan” movie on Disney+ for a $30 fee has split audiences into two camps. They include those furious about being charged three Hamiltons to watch something on a service that they are already paying for, when other releases (like, well, “Hamilton”) are included in the subscription price. And then there are those who say $30 is a lot less than they would have spent to bring their families to a theater to see the film in pre-pandemic times. 

New Walt Disney Co.
DIS,
-0.53%

Chief Executive Bob Chapek explained in a conference call with reporters on Tuesday that “Mulan” will stream on Disney+ on Sept. 4 in areas where movie theaters remain closed over coronavirus concerns. It will still open in theaters in areas where cinemas are open, however. And the $29.99 fee is not a one-time rental; Disney+ users will be able to watch the big-budget action movie as much as they want for as long as they are subscribed to the streaming service. So it’s essentially paying to own the movie — as long as you remain a Disney+ subscriber. 

“We see this as an opportunity to bring this incredible film to a broad audience currently unable to go to movie theaters, while also further enhancing the value and attractiveness of a Disney+ subscription,” he said.

Read more:Disney shakes up streaming approach after losing nearly $5 billion due to pandemic

But many people can’t get past the sticker-shock of paying $30 for a film during a pandemic that has cost more than 150,000 Americans their lives, and millions more their livelihoods. Besides, they’re already dropping $7 a month (or $70 a year) for Disney+. “What is Disney smoking to think I’d pay $30 to see ‘Mulan’ on a streaming service that costs me $8 a month,” tweeted one disgruntled customer.

Still others noted that $30 is less than it would cost to bring a family of four to a blockbuster movie before, especially when factoring in the price of snacks, gas, parking or baby-sitters for younger kids. The average U.S. movie ticket was $9.16 last year, according to the National Association of Theatre Owners, although they can run considerably higher in some cities. For example, a family of four (two parents, two children) in the greater New York City area would pay closer to $41.65 for a night at the movies, not counting snacks, according to ValuePenguin’s calculations. Tickets for adults at an AMC theater on the upper West Side were close to $18 apiece. 

Bernstein analyst Todd Juenger wrote in a note that he saw both sides. “Certainly, $30 for a family is significantly less expensive than it would cost to take that family to see this movie in a theater,” he said. “On the other hand, the marginal cost of watching some other movie on Disney+ or Netflix
NFLX,
+0.31%

is ‘zero.’ Or framed differently, a consumer could receive almost a half-year of Hulu SVOD ad-supported, or Disney+ at the annual discounted rate, for the same price as watching Mulan once.” 

Read more:Disney’s streaming changes have ‘built a big enough life raft’ to get through pandemic, analysts say as stock spikes

Disney’s “Mulan” move also has some viewers wondering about the future of other films with releases pushed back by the COVID-19 pandemic, such as Marvel’s “Black Widow.” Chapek said that “‘Mulan’ is a one-off” during the Tuesday call. “That said, we find it very interesting to be able to … learn from it and see what happens, not only in terms of the uptake of the number of subscribers that we get on the platform but the actual number of transactions on the Disney Plus platform that we get.”

But Robert Thompson, a pop-cultural historian and director of the Bleier Center for TV & Pop Culture at Syracuse University, told MarketWatch that the move away from catching new releases in traditional cinemas to streaming them on-demand at home was already well underway before the pandemic. “This was all going to happen anyway,” he said. “The only thing this quarantine and this virus has done is accelerate the complete takeover of the digital distribution of content.” 

And he noted that if you look at how movies are normally released, the number of tickets they expect to sell, and how many people are probably going to gather around a single streaming device at home to watch “Mulan,” then the $30 price isn’t so surprising. 

“However, the average person is not going to do the math, and when you are presented with a product and a price tag, you are not going to do a cost-benefit analysis from the industry standpoint before you decide to get upset or not,” he said. “And a lot of people think they already paid for Disney+ and the amazing library it’s going to open up to them — but now they have to not only pay more to get ‘Mulan,’ but it’s a lot more than several months of the subscription fee!” 

And this sort of blowback is something that streaming services will have to sort out as they experiment with how much to charge for movies and documentaries that go straight to streaming. One early success story includes Universal Pictures’
UVV,
+1.71%

“Trolls World Tour” earlier in the pandemic, which was released to video-on-demand for $20. It grossed nearly $100 million, making it the biggest digital movie release ever. Jon Stewart’s political comedy “Irresistible,” starring Steve Carrell, also pivoted to premiering via premium video-on-demand last month, dropping on Amazon Prime
AMZN,
-0.12%
,
Apple TV
AAPL,
+0.25%
,
Google Play
GOOG,
-0.05%

and FandangoNow
FHP,

to rent for around $19.99. 

But “Mulan” is going for $30, which Thompson suggests could advertise that it’s a premium title. “It’s an experiment. What we’re watching develop before our very eyes is the industry figuring out how much they could charge for this kind of giant picture,” Thompson said. “What Disney is doing now is feeling out whether the market will support that $30 price — listening to how many complaints they get, but more importantly, seeing how many people actually put down the $30.

“And a lot of people out there, despite all of the grumbling they’re doing … they’re gonna have a house full of kids who want to see ‘Mulan,’” he added.

Disney shares have been down 11.77% this year compared to a 4.68% decline for the Dow Jones Industrial Average
DJIA,
-0.13%

and a 3% gain for S&P 500 Index
SPX,
-0.11%





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Stocks open higher as corporate earnings outweigh disappointing private-sector jobs report


U.S. stocks rose modestly at the start of trading Wednesday as corporate earnings results continued to roll in, and investors pored over a disappointing jobs report from payroll provider ADP.

Reports of some progress in Congress toward a fresh coronavirus relief package also offered some gristle to the bulls early in the session.

The Dow Jones Industrial Average
US:DJIA
opened higher by about 160 points or 0.6%, near 26,988, while the S&P 500
US:SPX
gained 13 points, 0.4%, to open near 3,320. The Nasdaq Composite index
US:COMP
added 27 points, 0.2%, to open near 10,968.

On Tuesday, the Dow picked up 164.07 points, or 0.6%, at 26,828.47; the S&P 500 index rose 11.90 points, or 0.4%, to 3,306.51, while the Nasdaq Composite Index finished 38.37 points, or 0.4%, to close at 10,941.17, marking its 30th record close of 2020.

What’s driving the market?

The stock market started strong Wednesday, supported by hopes for progress toward another fiscal relief package in Congress and merger news between virtual health-care platforms.

Late Tuesday reports suggested that, after more than a week of almost daily face-to-face meetings, Trump administration officials and congressional Democratic leaders are working to reach a coronavirus aid bill deal by the end of the week even if the parties are still far apart on the issues.

U.S. Treasury Secretary Steven Mnuchin told reporters on Capitol Hill of the new timeline late Tuesday. “We are pleased to report that although we still have a lot of open issues—I just want to be very clear, we’re not at the point of being close to a deal—but we did try to agree to set a timeline that we’re going to try to reach an overall agreement, if we can get one, by the end of this week, so that the legislation could be then passed next week,” he said.

Stock futures held early gains even after payroll provider ADP
US:ADP
said only 167,000 private sector jobs were created in July, a fraction of the consensus estimate for a gain of 1.88 million jobs, according to Econoday, though June was revised up to 4.3 million from 2.4 million. Separately, the trade deficit narrowed 7.5% in July to $50.7 billion.

“In one line: Ouch,” wrote Ian Shepherdson, Pantheon Macroeconomics’ chief economist, after the ADP release. Shepherdson said he takes some comfort in ADP’s spotty record of foreshadowing the Labor Department’s numbers, however. “The error should diminish again in July because ADP’s model incorporates lagged official payroll data, so we expect Friday’s report to show payrolls up by about 1 million.” That would still leave many millions of jobs lost to the pandemic, however.

Also on deck is an update of the health of the services sector, with IHS Markit reading at 9:45 a.m., and then the more closely followed reading from the Institute for Supply Management at 10 a.m.

In Fed speakers, the central bank’s No. 2, Richard Clarida, told CNBC that he’s sticking to his prior forecast of an improving economy over the remainder of the year. Cleveland Fed President Loretta Mester will also speak at a virtual event at 5 p.m.

Better-than-expected quarterly results late Tuesday from Dow component and entertainment and theme park giant Walt Disney Co.
US:DIS,
even though it reported a $3.5 billion loss, also helped to fueled some bullishness in markets. The company touted 100 million subscribers on its streaming platforms amid the pandemic and announced that it would be releasing the live-action version of “Mulan,” through Disney+ for $29.99, a new approach to that streaming service.

Separately, Teladoc Health Inc.
US:TDOC
and Livongo Health Inc.
US:LVGO
said Wednesday they have agreed to merge in a deal valued at $18.5 billion to create a company that can serve a spectrum of health needs, using virtual care.

Choppy market action over the previous few trading sessions is a healthy sign, said Andrew Smith, chief investment strategist of Dallas-based Delos Capital Advisors. “The market is sending a very clear signal that it’s trying to rotate into the cyclical economic recovert names,” Smith said in an interview.

“The baton hand-off never happens overnight,” Smith said. “It could take months. We see the catalyst coming from the dollar decline, which is a huge barometer of the global economic recovery. Days like Tuesday, instead of the market collapsing, there’s a bifurcation between the stay-at-home names and the recovery names.”

Smith believes that back-and-forth between the two regimes, pandemic darlings like Amazon.com Inc.
US:AMZN
and cyclical recovery stories, will continue for some time. “It’s a battle between leading economic indicators and lagging ones,” he said.

Meanwhile, the U.S. and China said that they have agreed to high-level talks on Aug. 15 to assess Beijing’s compliance with the bilateral trade agreement signed early this year, The Wall Street Journal reported on Tuesday. Relations have deteriorated in recent months, with the Trump administration hammering Beijing over the coronavirus outbreak, Hong Kong, and the treatment of Uighurs in western China. The negotiations between Microsoft Corp.
US:MSFT
to buy China-owned entertainment platform TikTok has also created some friction between the two superpowers.

On the public-health front, the global tally for confirmed cases of COVID-19 climbed above 18.5 million on Wednesday, according to data aggregated by Johns Hopkins University, and the death toll rose to 701,027.

Which stocks are in focus?
  • Shares of Humana Inc.
    US:HUM
    were flat in early trading Wednesday, after the health care services company reported second-quarter profit and revenue that beat expectations, while maintaining its adjusted earnings outlook.

  • CVS Health Corp. shares
    US:CVS
    were up 0.6% in early trade Wednesday, after the drugstore chain trounced estimates for the second quarter and raised its full-year guidance despite the impact of the coronavirus pandemic on its operations

  • Shares of Regeneron Pharmaceuticals Inc.
    US:REGN
    ticked up after surging toward a record high in premarket trading Wednesday, after the biotechnology company reported second-quarter profit and revenue that beat Wall Street expectations, and said it expects clinical studies to remain generally on track in the face of the COVID-19 pandemic.

  • Lumber Liquidators Holdings Inc.
    US:LL
    reported Wednesday that it swung to a surprise second-quarter profit as sales fell less than expected, as sales trends improved through the quarter as markets reopened following COVID-19-related shutdowns.

  • Moderna Inc.
    US:MRNA
    shares slid 1.6% after the bellafter it said it was moving ahead with Phase 3 clinical trials for a COVID-19 vaccine.

  • Shares of Wayfair Inc.
    US:W
    fell more than 2% Wednesday, even after the online seller of home furnishings and housewares swung to a big profit beat in the second quarter, citing “unprecedented demand.”

  • Wendy’s Co.
    US:WEN
    beat analyst expectations on its second quarter earnings, and the fast-food chain declared a dividend, but also declined to provide guidance. Shares were lower.

How are other markets trading?

The 10-year Treasury note yield
BX:TMUBMUSD10Y
rose 2.3 basis points to 0.531% after rosy economic data from the eurozone. Bond prices move inversely to yields.

Global equity markets were churning higher. The Stoxx Europe 600 index
XX:SXXP
was up 0.5% to 365.02, and the FTSE 100
FR:UKX
jumped 0.9% to 6,090.24.

In Asia, China’s CSI 300 index
KR:000300
was flat and Japan’s benchmark Nikkei
JP:NIK
closed 0.3% lower.

The greenback slumped again, with the ICE U.S. Dollar index
US:DXY
down 0.7%.

Crude futures
US:CL00
surged 3.4% to $43.12 a barrel on the New York Mercantile Exchange, boosted in part by a decline in inventories. Gold futures for December
US:GCQ20
pushed 1.4% higher, to $2,030.00 an ounce, looking set for a fresh record.



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Oil prices jump after drop in U.S. crude and gasoline inventories


Oil futures posted strong gains Wednesday morning, hitting a five-month high, after data from an industry trade group showed large drops in U.S. stockpiles of crude and gasoline.

West Texas Intermediate crude for September delivery
CL.1,
+3.81%

CLU20,
+3.81%

surged $1.66, or 4%, to $43.38 a barrel on the New York Mercantile, while the global benchmark, October Brent crude
BRN00,
+3.60%

BRNV20,
+3.60%
,
was up $1.60, or 3.6%, at $46.04 a barrel on ICE Futures Europe. Both benchmarks traded at their highest since March 6.

The American Petroleum Institute late Tuesday said U.S. crude-oil inventories fell 8.6 million barrels last week, according to sources. The industry trade group said gasoline stocks fell by 1.7 million barrels, while distillate supplies rose by 3.8 million barrels. The Energy Information Administration’s more closely followed inventories report is due Wednesday morning.

Analysts said a further drop in crude and gasoline stocks could help underpin optimism over demand. Analysts surveyed by S&P Global Platts, on average, look for EIA crude inventories to show a fall of 4.1 million barrels, while gasoline stocks are forecast to decline 1.3 million barrels and distillate supplies are seen rising 100,000 barrels.

But some market watchers warned that upbeat expectations reflected by the crude rally may be premature.

“Though fears of weak demand due to corona are beginning to recede into the background at present, we believe the optimism displayed by oil market participants and oil prices themselves to be excessive,” said Eugen Weinberg, commodity analyst at Commerzbank, in a note. “OPEC’s premature expansion of production and the fact that demand remains fairly weak argue against any further price rise.”

OPEC+ pledged to cut output by 9.7 million barrels a day beginning in May, easing to 7.7 million barrels a day this month and running through the end of the year. Countries that exceeded the earlier curbs are supposed to further curtail output, which means output is targeted to rise by around 1.5 million barrels a day beginning this month, though skeptics doubt that past violators of such agreements will fully comply.

Crude’s rally was also in tune with gains for stocks, with U.S. equities on track for a solidly higher open.

In other energy trading, September gasoline
RBU20,
+3.48%

rose 3.5% to $1.2562 a gallon, while September hearing oil
HOU20,
+3.35%

jumped 3.3% to $1.3003 a gallon.

September natural-gas futures
NGU20,
+1.64%

advanced 2.5% to $2.248 per million British thermal units.



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Square stock surges after ballooning bitcoin interest drives huge revenue beat


Square Inc. posted a double earnings surprise Wednesday as the payments company delivered an unexpected surge in revenue for the second quarter in a release that came out a day early due to “early external access” of its financials.

Analysts expected Square’s
SQ,
+1.50%

revenue to decline in the period as the COVID-19 crisis pressured the company’s small-merchant customer base, but instead Square saw revenue jump 64% to $1.9 billion, above the $1.1 billion that analysts surveyed by FactSet had been expecting, driven by a large spike in bitcoin-related revenue and increased usage of the Cash App mobile wallet.

Square shares were up nearly 11% in after-hours trading.

Transaction-based revenues of $683 million easily topped consensus expectations for $533 million, though they were down 12% from a year earlier, while subscription and services revenue came in at $346 million, up 38% and ahead of the consensus view of $287 million. Square also posted $19 million in hardware revenue and saw a 600% surge in bitcoin revenue, to $875 million, driven by new active bitcoin customers and increased demand for the cryptocurrency. Analysts were looking for $278 in bitcoin revenue.

Read: Disney shakes up streaming approach after losing nearly $5 billion due to pandemic

Despite that spike, Square’s bitcoin feature, which lets users of its Cash App mobile wallet buy and sell bitcoin, remains a fairly low-margin operation for the company. It generated $17 million in gross profit, though that was up more than 700% from a year ago.

Wedbush analyst Moshe Katri told MarketWatch in an email after the results that Square’s revenue was flat from a year earlier when excluding bitcoin. “The market seems to essentially ignore COVID-related challenges at Square’s Seller segment (roughly 70% of revenues ex-bitcoin), reflecting the company’s high exposure to bricks-and-mortar merchants, while focusing on the company’s hyper-growth Cash App segment,” he said.

Square broke out revenue for its seller and Cash App businesses separately for the first time this quarter, disclosing $723 million in seller revenue and $1.2 billion of Cash App revenue, or $325 when excluding the bitcoin part of the business. Seller revenue was off 17%, while Cash App revenue increased 361%, or 140% when excluding bitcoin.

See also: Venmo and Square’s Cash App were going gangbusters before the pandemic — now they’re doing even better

More than 30 million Cash App users were involved in a transaction on the service in the month of June, up from 24 million in December, as the mobile wallet saw increased use cases during the pandemic. More than 7 million people in June used the Cash Card, a debit card associated with the wallet, and Cash Card spend was up almost 50% in the second quarter from the March quarter.

Active Cash App customers were involved in more than 15 transactions a month on average during the second quarter, up 50% from a year earlier.

“While transactions per customer have steadily increased over time, we recognize that engagement during the second quarter also benefited from government funds related to the stimulus and unemployment benefits,” Square said in its shareholder letter.

Keefe, Bruyette, & Woods analyst Steven Kwok said that a key issue heading into Square’s earnings call, which has been moved to 8 a.m. ET Wednesday morning, will be “the level of benefit the company is seeing related to government stimulus programs and sustainability of operating metrics going forward.”

On the merchant side of the business, Square saw gross payment volume drop 15% from a year earlier to $22.8 billion, though the company disclosed that trends improved sequentially during each month of the quarter as pandemic-related restrictions eased. Further, seller gross payment volumes were up 5% in July compared with a year prior, which the company called “a modest improvement” relative to June.

Square posted a second-quarter net loss of $11 million, or 3 cents a share. The company said it recognized a $21 million gain related to observable price changes for non-marketable equity investments and that excluding those impacts, it would have seen a net loss of $32 million for the quarter. The company saw a net loss of $7 million a year prior.

Adjusted earnings per share rose to 18 cents for the quarter, down from 21 cents but ahead of the FactSet consensus, which was calling for a 5-cent loss.

Shares have added 115% over the past three months as the S&P 500
SPX,
+0.36%

has increased 16%.



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