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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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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Kodak shareholders were not the only beneficiaries of the sudden stock surge — holders of convertible bonds also saw tidy gains


The sharp rally in Eastman Kodak Co.’s share price after news last week of a $765 million government loan to help it make drug ingredients at U.S. factories has offered shareholders and executives with stock options a tidy windfall.

But they’re not the only ones to reap a reward from the increasing value of their holdings. On Monday, Kodak
KODK,
-4.81%

disclosed that the holders of its 5.00% convertible notes due in 2021, which were issued in May 2019, had converted notes valued at a total of $95 million into 29.9 million shares of Kodak common stock on July 29.

Those notes were issued with a strike price of $3.175 per converted share. The stock closed at $33.20 on July 29, meaning the notes were worth just under $900 million. The stock has fallen 60% since then.

The notes were originally sold to funds managed by Southeastern Asset Management Inc., an employee-owned investment firm based in Memphis, Tenn. That company is Kodak’s biggest shareholder, with an 11.3% stake, equal to 4.96 million shares, according to FactSet data.

The notes were held by Southeastern’s Longleaf Partners Small-Cap Fund; C2W Partners Master Fund Limited, which is operated by Additive Advisory and Capital LLC; and Deseret Mutual Pension Trust, according to a regulatory filing.

See:Kodak’s stock triples as company announces pandemic plan to start making pharmaceutical ingredients

Southeastern Asset Management and Kodak did not respond to requests for information on the bonds. The SEC declined to comment on the movement in Kodak’s share price.

But the SEC has launched an investigation of the trading in Kodak’s shares before and after the news of the loan broke, the Wall Street Journal reported Tuesday, citing people familiar with the matter.

The loan news caused Kodak’s shares to climb to as high as $60 at their peak last week, before falling back to $15 on Monday, in massive trading volume that far exceeded the stock’s longer-term average daily turnover.

See also: Kodak’s stock surge turned executive options into huge potential payday

The stock had already moved 25% the day before the news was officially disclosed. Executives with stock options, including some awarded just a day before the loan became public, were sitting on big paper gains.

Kodak had shared information on the loan with a few media outlets before the public announcement, according to media reports. Some had published that information before they were asked to delete it and respect an agreed-upon news embargo.

Kodak’s shares had mostly languished since the pioneering photography company emerged from bankruptcy in 2012. The company, a member of the blue-chip Dow Jones Industrial Average as recently as 2004, has made several efforts to reinvent itself and enjoyed a brief stock rally in 2018 after announcing plans to get in on the blockchain and cryptocurrency craze.

News of the SEC probe came after Sen. Elizabeth Warren, a Democrat from Massachusetts, wrote an open letter to SEC Chairman Jay Clayton urging his agency to investigate “potential incidents of insider trading prior to the July 28, 2020, public announcement of the Trump administration’s $765 million loan to Eastman Kodak Co. (Kodak) to support the production of generic drug ingredients in response to the coronavirus disease 2019 (COVID-19) pandemic.”

Kodak shares were down 12% Tuesday but are up 186% in 2020, while the S&P
SPX,
+0.30%

has gained 2% in the year to date. The Dow industrials
DJIA,
+0.55%

are down 6.2% this year.



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Global Payments stock gains after company says new partnership with Amazon’s AWS could triple market opportunity


Global Payments Inc. topped earnings expectations Monday and announced a new partnership with Amazon.com Inc.’s Amazon Web Services that it said would provide more cloud-focused offerings for bank clients and allow the company to expand its geographic reach.

Shares
GPN,
+0.99%

are up 1.2% in Monday afternoon trading.

Through the partnership with Amazon’s
AMZN,
-1.47%

AWS, Global Payments will create a cloud-based processing platform for card issuers. Global Payments’ Chief Executive Jeff Sloan said that the arrangement would “level the playing field for large financial institutions” by giving them access to technology-oriented offerings that could help them to deliver more modern consumer experiences and move more quickly to bring about feature improvements.

Things like the rollout of contactless payment options and improved digital banking experiences “can all be done better, faster, and cheaper in the cloud,” Sloan told MarketWatch. The AWS arrangement is about “letting large financial institutions globally access the same technology that startups did,” he said.

See also: Here’s how PayPal hopes to turn Venmo into the next PayPal

From the perspective of Global Payments’ own business, the AWS partnership allows the company the opportunity to move into new markets, since it had previously been limited just to geographies where it could build physical data centers. Sloan said that overall, the arrangement could more than triple the company’s addressable market in issuer solutions.

Global Payments beat earnings and revenue expectations for the second quarter despite (and perhaps, even partly due to) the pandemic, and Sloan pointed to sequential improvement from month to month during the period, while some aspects of the business returned to year-over-year growth in June.

Further, trends were “stable” throughout July “and even slightly improving over what we saw in June,” President Cameron Bready said on Global Payments’ earnings call.

Sloan told MarketWatch that Global Payments saw a 16% increase in the e-commerce and omnichannel category during the second quarter, excluding travel. He disclosed on the earnings call that this part of the business accounts for 20% of merchant revenue.

Don’t miss: Visa tops earnings expectations, but travel category remains slow to snap back

He also said that he believes Global Payments is the “biggest deployer of NFC technology,” referring to near-field communications technology that allows for contactless payments, which have picked up during the COVID-19 crisis as shoppers look for ways to avoid exchanging cash or handing people their credit cards due to concerns about viral spread.

“I think you’re likely to pull forward two to three years’ worth of demand and I don’t see it diminishing,” Sloan said about contactless trends as well as the boom in e-commerce adoption during the pandemic. He said that it can be difficult to get consumers to change their behavior in terms of payment preferences but that people are unlikely to revert to old habits once they have made a change.

Read: Mastercard earnings dip as COVID-19 limits spending but drives greater demand for antifraud services

While COVID-19 has created growing interest in tap payments, Sloan said that the crisis could generate a preference for contactless payments like physical cards that don’t require facial identification that way some modern phones do for their mobile wallets. Activating facial recognition is more difficult in the age of the pandemic since masks block the nose and mouth.

Global Payments, which merged with fellow financial technology company Total System Services in September, earned an adjusted $1.31 a share for the second quarter, down from $1.51 a share a year earlier but ahead of the $1.21 a share that analysts surveyed by FactSet had been forecasting. Revenue rose to $1.67 billion from $935 million.

Shares have gained 11.3% over the past three months as the S&P 500
SPX,
+0.79%

has risen 16.5%.



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Caterpillar’s stock swings lower as downbeat dealer inventory outlook, retail sales data follow earnings beat


Shares of Caterpillar Inc. fell on Friday, reversing early gains, following the construction and mining equipment maker’s post-earnings conference call with analysts, in which the company provided a downbeat outlook with regard to dealer inventories.

Caterpillar gave investors an early reason to cheer, with the 6:00 a.m. Eastern release of its second-quarter results. The stock surged as much as 6.0% in the premarket after the results, in which profit and revenue fell from a year ago as the COVID-19 pandemic weighed, but beat Wall Street expectations.

The company had also said in the release that dealers reduced machine and engine inventories by about $1.4 billion during the quarter, compared with an increase of $500 million in the same period last year.

Then just as the stock
CAT,
-2.81%

was near its premarket highs, Caterpillar released its rolling 3-month retail sales statistics, and the early gains started to evaporate.

Worldwide retail sales, as reported in constant dollars on unit sales by dealers, fell 23% from a year ago for the rolling three-month period ending June, after falling 23% in May and shedding 22% in April. North America sales were down 40% in June after dropping 36% in May and declining 27% in April. In resource industries, retail sales fell 21% in June after dropping 21% in May, with North America down 46% in June after falling 39% in May.

That comes despite Caterpillar saying it saw activity in resource industries start to improve in May and June.

Then the stock turned decidedly lower after Caterpillar got into its post-earnings conference call with analysts, which started at 8:30 a.m.


FactSet, MarketWatch

The stock slumped 2.8% to close Friday at $132.88, and has lost 5.4% since it closed at a 5-month high of $140.53 on Wednesday. Year to date, it has declined 10.0%, while the SPDR Industrial Select Sector exchange-traded fund
XLI,
-0.37%

has slid 12.0% and the Dow Jones Industrial Average
DJIA,
+0.43%

has declined 7.4%.

During the analyst call, Chief Executive James Umpleby noted that the change in dealers’ inventories from a year ago drove nearly half of the sales decline for the quarter.

“The decrease in dealer inventories in this past quarter was greater than we expected,” Umpleby said, according to a FactSet transcript of the call. “We now anticipate that our dealers will reduce their inventories by more than $2 billion by year end.”

That outlook is actually more like a $2.2 billion reduction. Chief Financial Officer Andrew Bonfield said inventories were reduced by $1.2 billion for the first half of the year. For the second half of the year, he said that based on the latest read of end-user demand, he expects dealers will further reduce inventories by another $1 billion.

During that first-quarter post-earnings conference call on April 28, Bonfield said he expected year-end dealer inventory reductions to be at the “higher end” of the previously provided guidance range of $1.1 billon to $1.5 billion. He said he would give an update on the 2021 outlook in January. Read more about first-quarter earnings.

And regarding the outlook for retail sales, Umpleby said he expects a third-quarter decline of around 20%, which is consistent with the decline in the second quarter.

Overall, the company said in the earnings release that it wasn’t providing a financial outlook for 2020 at this time, given the continued uncertainties regarding the COVID-19 pandemic’s effect on the global economy. Read MarketWatch’s latest Coronavirus update.

“We will adjust production as conditions warrant and are prepared to respond quickly to any positive or negative changes in customer demand,” Umpleby stated.

And on the analysts call, Bonfield said succinctly: “In 2021, we expect to produce to demand.”



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