Fastly: Great Story At A Terrible Price

Aug. 24, 2020 11:41 AM ETFastly, Inc. (FSLY)19 Comments
Gary Alexander profile picture
Gary Alexander
25.43K Followers

Summary

  • Fastly has seen revenue growth soar above >60% y/y amid increased internet usage during the coronavirus.
  • Its pace of revenue growth suggests that Fastly continues to gain market share against the legacy content delivery networks like Akamai.
  • At the same time, Fastly's >20x forward revenue multiple likely bakes in all of this strength.
  • Fastly's exposure to TikTok, representing 12% of its revenue in the first half of 2020, is also a headline risk.
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Few stocks have seen as rarefied performance as Fastly (NYSE:FSLY) this year, the content delivery network that uses edge computing technology to rapidly deliver web content to users. Like other internet infrastructure companies that price their offerings based on their clients' usage (Twilio (TWLO) and Bandwidth (BAND) are other examples of companies enjoying banner years in 2020), Fastly has achieved unheard-of growth rates this year.

At the same time, the whole market rally this year has been driven by "FOMO" - or a fear of missing out. Investors have latched onto the best-performing names, clinging to the belief that winners will keep winning and that any companies with exposure to the internet are the safest shelters to hide in amid the coronavirus. Yet over the past month, investors seem to have fatigued of Fastly, and the stock is down ~30% since reporting second-quarter results, despite a "beat and raise" on paper.

Chart
Data by YCharts

The question for investors is: is it the right time to catch Fastly on this rare dip (after the stock has run up ~4x since the start of the year), or does this correction have further room to go?

In my view, it's the latter. Fastly's strong second-quarter results, which I'll provide an update on in this article, do little to persuade me to buy Fastly stock while it's trading at nosebleed levels, because I think all of that strength is already baked into the company's current valuation multiple.

It's easy to see why Fastly is such a popular story. The chart below, taken from tech research website SimilarTech, estimates Fastly's market share at only ~3% among the top 10k websites on the internet.

Figure 1. Fastly market shareSource: SimilarTech.com

And Fastly's market share is rapidly climbing. Fastly's Q2 revenue growth clocked in at 60% y/y, while Akamai (

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This article was written by

Gary Alexander profile picture
25.43K Followers
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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