As a TikTok Deal Nears, Innovative Fastly Stock Is Still Looking Good

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Recent developments appear to have shown that my views on Fastly (NASDAQ:FSLY) were correct. As a result, I remain upbeat on FSLY stock.

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In my Aug. 13 column on Fastly, I predicted that either Microsoft (NASDAQ:MSFT) or a different American company would buy TikTok.

As I noted in the previous piece, Fastly said that the app “accounted 12% of its revenue in the first half” of the year. I also wrote that “the worries about Fastly’s revenue from TikTok are overdone…{and} Fastly continues to effectively innovate and looks poised to be a huge disruptor.”

TikTok Looks Set to Be Acquired Soon

On Aug. 27, CNBC reported that TikTok “is nearing an agreement to sell its U.S., Canadian, Australian and New Zealand operations.”

The app is in talks with Oracle (NYSE:ORCL) and Microsoft about such a deal, the business news channel reported, citing unnamed sources. TikTok could unveil the sale “as soon as” the week of Aug. 31, CNBC added.

In a sign that a deal is imminent, TikTok CEO Kevin Mayer resigned, The Financial Times reported on Aug. 27. Mayer’s departure suggests that a deal is close because, given the size of Microsoft  and Oracle and the vast experience of their executives, either company would probably want to replace Mayer with an internal manager.

An Analyst Is Upbeat on Fastly’s Technology

Research firm Raymond James shares my optimism about Fastly’s technology. After meeting with Fastly’s CFO recently, the firm upgraded the shares to “outperform” from “market perform,” TheStreet reported on Aug. 24. According to the story, Fastly’s superior platform and approach has made it sustainable.

In other words Fastly technology appears to be better than that of its competitors, Raymond James believes.

An analyst at Raymond James, Robert Majek, estimates that “the $6 billion content-delivery market” will increase around 9%-13% annually, and he noted that Fastly currently only controls about 5% of the sector at this point.

According to Barron’s, the analyst added, “We don’t believe investors fully appreciate the duration and durability of the company’s growth profile… Compute@Edge and security that should” enable the company’s growth to beat analysts’ average estimates and “justify current valuation levels” of FSLY stock.

Fastly emphasized the importance of Compute@Edge and its security systems on its second-quarter earnings conference call.

As I’ve said before, Computer@Edge is revolutionary. It allows e-commerce vendors to have the information they need closer to the devices using it, rather than stores centrally.

The company added that its security solutions have been enhanced by its large investments and by the fact that it utilizes only one network.

Fastly’s Valuation Isn’t That High

Much has been made of the allegedly high valuation of FSLY stock. Moreover, some investors may be concerned that Fastly is nearing Raymond James’ price target of $100.

But in my previous column, I noted that Shopify (NYSE:SHOP),  Zoom Video (NASDAQ:ZM) and The Trade Desk (NASDAQ:TTD) all had meaningfully higher price-sales valuations than Fastly.

In an Aug. 24 column, a Seeking Alpha columnist Michael Wiggins De Oliveira wrote that the hares were “cheaply valued.” He pointed out that Fastly’s revenue growth and valuation were both very similar to those of its competitor, Cloudfare (NYSE:NET).

“Cloudflare is burning through significantly more free cash flow than Fastly, despite having more revenues to offset its losses with,” he wrote.

The Bottom Line on FSLY Stock

As I predicted, worries about TikTok disappearing from the U.S. appear to have been overdone, and my belief about the superiority of Fastly’s technology has been somewhat validated by Raymond James’ report.

Meanwhile, it’s clear that the valuation of FSLY stock is not as overvalued as some believe. Given these points, I continue to recommend that investors buy the shares.

As of this writing, the author owned shares of FSLY stock.

The post As a TikTok Deal Nears, Innovative Fastly Stock Is Still Looking Good appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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