Fastly's (FSLY) Initial Q3 Results Disappoint, Shares Fall

Fastly FSLY reported disappointing third-quarter 2020 preliminary results, primarily affected by lower usage of its platform by its largest customer Bytedance, the operator of TikTok.

Markedly, Fastly stated that it was required to report preliminary results in conjunction with a Form S-3 filing, due to the completion of its Signal Sciences acquisition.

The company is set to release third-quarter 2020 results on Oct 28.

Following the announcement, Fastly's shares plunged almost 26% in after-hours trading. In pre-market trading, shares were down roughly 29%.

Fastly, Inc. Price and Consensus

Fastly, Inc. Price and Consensus

Fastly, Inc. price-consensus-chart | Fastly, Inc. Quote


This Zacks Rank #3 (Hold) company along with its Zacks Internet Software peer Zoom Video ZM has been one of the top-performing stocks to date. While Fastly has rallied 513.8% year to date, Zoom Video has returned 648.5%.


Year-to-Date Performance

Q3 Revenue Guidance Lowered, 2020 View Scrapped

The company now expects third-quarter 2020 revenues between $70 million and $71 million compared with its previous guidance of $73.5-$75.5 million, provided on Aug 5.

The Zacks Consensus Estimate for third-quarter revenues stands at $74.9 million, indicating growth of 50.4% from the figure reported in the year-ago quarter.

Moreover, Fastly withdrew its previously provided third-quarter guidance of an adjusted loss of 1 cent per share. The consensus estimate for earnings is pegged at break-even.

The company also scrapped its 2020 guidance. Markedly, Fastly had expected fiscal 2020 revenues between $290 million and $300 million. Moreover, non-GAAP operating loss was expected to be $2-$12 million and adjusted loss was estimated to be 1-6 cents per share.

Lower Usage Hurt Top-Line Growth

Fastly’s third-quarter 2020 results suffered from lower usage by not only TikTok but also several other customers. Notably, TikTok accounted for 12% of Fastly’s revenues for the trailing six months ended Jun 30, 2020.

TikTok suffered from political uncertainty after President Donald Trump threatened to ban it citing national security concerns. Finally, in late September, TikTok owner Bytedance entered into an agreement with the U.S. government to resolve the outstanding issues. Per the agreement, Oracle ORCL and Walmart WMT will invest to acquire 12.5% and 7.5%, respectively, of the newly formed TikTok Global business. (Read More: Oracle's 12.5% Stake in Tiktok Global to Rev Up Cloud Market)

Although lower usage has hurt Fastly’s growth in the to-be-reported quarter, a growing customer base is a positive. Markedly, at the end of the second quarter, this Zacks Rank #3 (Hold) company had 1,951 customers, up from 1,837 in the previous quarter. Moreover, total-enterprise customer count increased from 297 in the first quarter to 304 in the last-reported quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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