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Why Fastly Stock Plunged Today

What happened

Shares of Fastly (NYSE: FSLY) were diving today after the company reported preliminary third-quarter revenue that was below its earlier guidance. TikTok, its biggest customer, appeared to be the culprit. Fastly also tossed out its full-year guidance and all other forecasts it had made in its second-quarter earnings report.

The news cooled off what had been one of the hottest growth stocks of the year, sending shares down 27.7% as of 9:59 a.m. EDT today.

The Fastly logo

Image source: Fastly.

So what

Fastly now expects to post third-quarter revenue of $70 million to $71 million, down from prior guidance of $73.5 million to $75.5 million. The primary reason for the dialed-down expectations appeared to be the Trump administration's crackdown on TikTok, along with other Chinese apps, since management said it saw a significant revenue reduction from TikTok. Additionally, the company reported that a few customers had lower-than-expected usage toward the end of the quarter, which could reflect the reopening of the economy and therefore lower demand for internet connectivity.

As an infrastructure-as-a-service company, Fastly bills according to usage, so it's a key metric for investors to follow.

CEO Josh Bixby said: "The current global environment has in some ways fueled our business, but has also created areas of uncertainty. While our preliminary third-quarter results reflect the challenges of a usage-based model, we believe the fundamentals of Fastly's business remain strong, as does demand for our platform."

Now what

Even with the lower guidance, the edge computing platform still expects revenue to grow in a range of 40.6% to 42.6% in the third quarter, showing the growth story is still intact. Bixby also touted the company's recent $775 million acquisition of Signal Sciences -- an app security company that counts Under Armour and DoorDash among its customers -- and said fourth-quarter guidance would include revenue from Signal Sciences.

Today's news is no doubt a setback for Fastly, but the challenges with TikTok are likely fleeting. Long-term investors may want to take advantage of the pullback. Fastly will deliver its complete third-quarter report on Oct. 28.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fastly, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.

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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