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Why I'm Still Not Buying Fastly

May 06, 2021 10:23 AM ETFastly, Inc. (FSLY)NET52 Comments


  • Fastly stock tanked Wednesday evening following disappointing quarterly results.
  • Downbeat forward guidance and the CFO stepping aside only added to the gloom.
  • The sharp decline might make you think there's a good buy-the-dip opportunity. However, Fastly stock actually looks expensive, even now.
  • Looking for a helping hand in the market? Members of Ian's Insider Corner get exclusive ideas and guidance to navigate any climate. Learn More »

Plantilla de diseño de sitio web vectorial. CDN - acrónimo de Content Delivery Network, concepto de negocio.
Photo by Nadezhda Kozhedub/iStock via Getty Images

Fastly (NYSE:FSLY) had quite a sprint in 2020, and its shares have collapsed with equal speed this year. The company, for those unfamiliar, is a content delivery network "CDN". Fastly serves as an intermediary for internet

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This article was written by

Ian Bezek profile picture

Ian Bezek is a former hedge fund analyst at Kerrisdale Capital. He has spent the decade living in Latin America, doing the boots-on-the ground research for investors interested in markets such as Mexico, Colombia, and Chile. He also specializes in high-quality compounders and growth stocks at reasonable prices in the US and other developed markets.

Ian leads the investing group Learn more .

Analyst’s 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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Comments (52)

Fastly has a great product, their business needs improvements. Joshua is not a typical CEO and their leadership seems to lack experience. But the most important thing forward looking is, they are hiring the right people. CRO addition was great. Someone who has been a part of billion dollar company. CFO departure is an opportunity to improve spend efficiency. Get someone experienced. Fastly's tech is actually quite good. Remember, this is a company that built 300K recurring revenue model without a GTM team (I may be wrong here). They just started growing GTM/sales team. These things take time. Plus, the way CDN scaling works is, it takes a good 3-4 quarters to ramp up. So by that logic, you are right that Q1 should have been great, but I would have focused more on customer additions than revenue (because revenue lags). This is reflected in their annual guidance increase. They had the largest customer addition this quarter (already seeing the impact of a CRO). I suspect with a good CFO, the turnaround begins... Remember that Fastly is a part of the elite group of folks working on WebAssembly like MSFT, GOOGL, Firefox etc. Short term looks bleak, but there is potential. I wouldn't write then off just yet. My suspicion is, this quarter they have added some really large enterprises that will scale up by EOY thereby pushing the annual guidance. Plus, a flatter Q2 is trend.
Fastly is starting to exhibit more and more of a typical Sand Hill Road type stench. Here's what the founder / former-CEO / now CTO has done ...

5/3/21 - sell 14,423, proceeds = $894,658.69
4/26/21 - sell 14,423, proceeds = $1,106,388.81
4/19/21 - sell 14,423, proceeds = $975,571.72
4/12/21 - sell 14,423, proceeds = $981,773.61
4/5/21 - sell 14,423, proceeds = $994,321.62
3/29/21 - sell 14,423, proceeds = $925,379.68
3/22/21 - sell, 14,423, proceeds = $1,036,725.24
3/8/21 - sell, 14,423, proceeds = $927,398.90
2/17/21 - sell 23,098, proceeds = $2,180,451.20
11/17/20 - sell 19,724, proceeds = $1,549,911.92
11/9/20 - sell 57,688, proceeds = $4,092,963.60
11/2/20 - sell 92,308, proceeds = $6,860,330.56
10/26/20 - sell 92,308, proceeds = $7,720,641.12
10/12/20 - sell 92,308, proceeds = $11,679,731.24
10/5/20 - sell 92,308, proceeds = $8,874,491.12

And so on, including a sale of $43.4m of stock on 8/7/20 followed by a $7.3m sale three days later.

He sold approx. $140m worth of stock in 2020. Now he's selling about $1m per week!

I get that he's on a plan and that he deserves some liquidity but the $140m wasn't enough to tide him over?

Meanwhile, they're all selling like mad - the CEO, the CFO, the Chief Counsel.

The current CEO, Joshua Bixby, is a VC-type not a tech company CEO. And he's selling 500,000 or so per month lately.

Could the flag be any redder?
All Things Energy profile picture
Fastly is a fabulous company, with a fabulous service - but I have serious doubts to their business model. If a company carries such an earnings multiple, I would expect them by now to prove some sort of operational leverage. I would not expect to see declining GP (from Q4).

They need more attention paid to their financial performance, IMO
Now analysts are thinking that Cloudflare is killing Fastly. The quarterly report from both companies reinforce this narrative.
The Stock Stooge profile picture
I never understood the argument for why NET, akamai, AWS, Azure, etc couldn't match their products. I get that their edge has a unique design, but if it's better there's no reason I can see that it can't be copied.
Good article, bad timing. Where were you two days ago, Mr Bezek??
I agree with your comments about the legacy CDN business, but Fastly’s rich valuation has always been about their move into the Edge Computing space - something not mentioned once in this article
5ofDiamonds profile picture
I am nibbling on a ton of beaten down names last 48 hours @Ian Bezek There is nothing else to buy. Perhaps I lack patience, or the BTFD bug has caught me. Day time, I do not get time. So already placed nibble limit orders on $AQN, $XPEV, $TDOC, $SNOW, $PLTR, $FSLY, $U, $BYDDY, $NNDM, $AFRM, $SPLK, $AI, $INSG, $HAE, $MKTX, $BEPC, $BAP, $DEA, $CPNG. These all trade near their 52WL and at least 50% down from their 52WH. They all made my WL, so at least I believe have some potential. The idea here is that even if 2 of them become multi-bagger, the rest can go to zero. My 1c.
Ian Bezek profile picture
@5ofDiamonds I really like some of those, U and AI for example which I've talked about here before. SNOW is definitely on my radar I'd been waiting for sub-$200 price and it finally is getting there.

BAP is fascinating. I bought some during the 2016 crash and it promptly doubled. Hopefully same will happen again this time, fingers crossed with the election next month.
424270 profile picture
Calling Fastly a CDN shows the author's lack of understanding of the company's value proposition. And 20% "normalized" growth Q2 '21 vs Q2 '20 is not bad at all considering the one-time exceptional growth in volume due to COVID during Q2 '20.
Ian Bezek profile picture
@424270 If you Google Fastly, the first result is the company's website, which begins as follows: "Fastly's content delivery network is all about control and reliability:"

The normalized part is that they excluded TikTok leaving from that figure. A lot of businesses show good growth if they adjust away their largest customers defecting.
424270 profile picture
@Ian Bezek I don't need to google them. I understand the tech and use cases behind their product. CDN is a label for a casual observer.
I am not happy that TikTok was able to walk away so easily, and that IMO presents the weakest spot in Fastly's investment case - their tech is great but not a must-have (new sales are not going to come easily). TikTok was a special case though. Branding them as "defection" is a bit disingenuous.
Ian Bezek profile picture
The point was simply that if the company describes itself that way in the opening sentence of its website, don't blame an author for using that label as well. You are correct that they are doing some other more interesting stuff behind the scenes.
GDPPP profile picture
Agree, this thing was just trading based on momentum (not fundamentals). Based on their innovation and execution (compared to say NET which is definitely a much superior company and founder driven), a 5x Ev/Sales might be reasonable. If competition comes in and starts stealing their market share then it's even lower than that.

NET falling in sympathy is great as they have a superior platform, margins along with more focus towards security at the edge (where their competitive positioning will create a barrier to entry IMO).
@GDPPP what are you talking about. arter bergman is the chief architect of fastly. also cloudflare is a much bigger and older company than fastly…. this is the growing pains of a young company. it’s only been a public company for two years… give me a break. you wouldn’t know a good business venture if it slapped you in the face
GDPPP profile picture
@Blackdesperado I stand by what I said above. NET is a superior company compared to FSLY. No need to get offensive about it, as emotions hardly work in the stock market.
@Blackdesperado How you explain that Cloudflare - a much older and much bigger company is also growing much faster? If fasly's main competitor is much bigger and growing much faster. how do you think fastly's future?
I think some stocks will give back literally all their Covid gains and this one is on my list. AYX is trading lower than it was pre Covid. TDOC is another one.
Ian Bezek profile picture
I don't think FSLY deserves to go all the way back to pre-Covid levels, at least not yet. But from where I was writing ($48) there as still plenty of room down even before getting back to $20.
Why not Akamai? A lot bigger, a lot cheaper and doing basically the same. And totally not hot and hip.
Ian Bezek profile picture
I'd rather own Akamai, at least at today's prices.
Zorgo profile picture
Fastly is not software only company therefore you can't apply "software" margins to it. However, if we are talking about software, and you mentioned it only in a negative way (the margin bit)...Please don't forget that they have a very interesting and unique serverless edge platform, security offerings and that is not a commodity. I'm not saying it's a buy right now, I do agree with you that it's a wait and see but you can't just call it a commodity and at the same time apply software margins. Gotta choose!
@Zorgo compute@edge is considered to be IaaS (infrastructure as a service), not SaaS
Ian Bezek profile picture
You can have lower gross margins if you accept a lower P/S ratio. When people were paying 25x revenues for FSLY, it required some more ambitious estimates about how good the business quality was.
Zorgo profile picture
@The Beefy Investor yeah i know what it is. and that is what I was explaining exactly.
Well here we are at $40 today. Ouch!
@clrodrick its going to low thirties. even with the nasdaq up 1% this thing couldnt even go positive.
We will see long term holding, . the edge market is just starting with Cloud n 5G, let's see if this fastly dog has legs ... Data usage revenues increase . The internet is only getting bigger, work, school, shop medical at home ..pandemic or not. This puppy is not going away. They already are best in breed.. So i Read
Sundance Utah profile picture
I bought some call options after the first cliff fall back in Oct. 2020, I figured there were a couple more rallies before the sheer weight of its massive run up literally crushed it under its own bloated carcass.

When a $20 stock goes meteoric because of Covid - despite Covid having no bearing on its products, you gotta expect a lot of pain when investors shake themselves out of their silly stupor. $ZM, $PTON, $AYX and dozens more have sucked billions out of FOMO traders. All a person can do is sit back and watch the carnage unfold.
analysts have not issued sell recommendations yet
Many hyped and quite over valued stocks are falling off a cliff.

If inflation comes in higher than expected, watch for even greater correction.
I just wish these bearish articles come out before the 24% drop.
@terrie000 It was already obvious with the price to sales multiple...
Got to say i am loving this sell off. This stock particularly was a poster child for the fomo fools and momo chasing morons willing to run stocks to obscene levels and crow about how smart they were for doing it. This lesson is way past due. The losses will be with you the rest of your lives, hopefully, so will the lesson.
@jeffk100 a sh*t load of people made a sh*t load of money on this stock... but you sure didn't... leaving you with, as only pleasure, the sadistic enjoyment of other people loosing... bad person
Adream profile picture
@benJack I highly doubt that. More salt?
@benJack crybabies always make money when they can find chumps dumber than themselves. Unfortunately, most are left holding the bag when all is said and done. is that why you are so angry? a baggie?
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