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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Trump executive order to punish social-media platforms is largely toothless, legal experts say


President Donald Trump on Thursday signed an executive order ostensibly to prevent online censorship, a broad government review of private companies’ activities with potentially grave consequences for social-media companies.

Trump claimed in the Executive Order on Preventing Online Censorship” order that social-media companies have “unchecked power” to censor and restrict speech, and “we’re fed up with it.” He vowed to limit liability protections enjoyed by such companies, with possible legislation and lawsuits to come.

See also: Trump signs order aimed at curbing social-media companies amid brawl with Twitter

The order — a day after Trump threatened to punish Twitter Inc. for placing a fact-checking warning label on his tweets on false mail-in voting claims — sent Twitter
TWTR,
-4.44%

shares down 4.4% in regular trading. Facebook Inc.’s
FB,
-1.60%

stock declined 1.6% after a recent winning streak. Google parent Alphabet Inc.
GOOGL,
-0.14%

GOOG,
-0.07%

shares were flat.

Snap Inc.
SNAP,
+7.35%

and Pinterest Inc.
PINS,
+3.61%

, which seemed to escape Trump’s wrath, both had solid days on Wall Street: Snap shares closed up 7.4%, and Pinterest advanced 3.6%.

See also: Trump to sign executive order on social-media companies on Thursday

The controversial order immediately pitted social-media’s two biggest names on opposite sides of the debate. In a series of tweets, Twitter Chief Executive Jack Dorsey said Wednesday, “We’ll continue to point out incorrect or disputed information about elections globally. This does not make us an ‘arbiter of truth.’ Our intention is to connect the dots of conflicting statements and show the information in dispute so people can judge for themselves. More transparency from us is critical so folks can clearly see the why behind our actions.”

Facebook CEO Mark Zuckerberg, however, told CNBC and Fox News’s “The Daily Briefing” that he “believes strongly that Facebook shouldn’t be the arbiter of truth of everything that people say online.”

“We have a different policy than Twitter on this,” Zuckerberg said. “Private companies probably shouldn’t be, especially these platform companies, shouldn’t be in the position of doing that.”

Legal experts said the order is largely political and toothless in terms of enforcement, but it could lay the groundwork for legislation. Others warned it is a blatant and unconstitutional threat to punish social-media companies that displease the president.

Megan Brown, an attorney who specializes in privacy and cybersecurity, told MarketWatch that the order is “a major move to change the law and threatens to have impacts far beyond the companies named in the EO.”

“Moves like this should come from Congress, not Executive Orders,” Brown said in an email. “It will set in motion several agency activities that could have a variety of unintended consequences and will generate a lot of lobbying and legal spending.”

See also: ‘Totally absurd and legally illiterate’ — Harvard law prof on Trump’s charge Twitter is stifling free speech

Others were more blunt and unsparing. ”Much as he might wish otherwise, Donald Trump is not the president of Twitter,” ACLU Senior Legislative Counsel Kate Ruane said in a statement. “The president also has no authority to rewrite a congressional statute with an executive order imposing a flawed interpretation of Section 230. Section 230 incentivizes platforms to host all sorts of content without fear of being held liable for it. It enables speech, not censorship.”

Fordham law professor Olivier Slyvain added that Twitter has “lawfully and, in my opinion, rightfully, chosen to flag lawful user content that it finds hateful and opprobrious.”

“These flagging decisions are especially appropriate with regards to misinformation about important public health matters, including preventive treatments for COVID-19 and other dangerous viruses, as well as our voting and electoral processes generally,” Slyvain said in an email.

The order comes amid a mounting death toll from the coronavirus pandemic — it topped 100,000 on Wednesday in the U.S. — and new jobless claims on Thursday that put 41 million Americans out of work.





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