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These Two Good Pieces of News Should Make Fastly Stock Appealing

A recent acquisition by Fastly (NYSE:FSLY) should make its offerings much more secure, and it looks as if FSLY stock will not be hurt by the U.S. government’s decision to ban TikTok.

A magnifying glass zooms in on the Fastly (FSLY) website.
Source: Pavel Kapysh / Shutterstock.com

I continue to be upbeat on Fastly’s technology and its growth outlook, and recommend that long-term investors buy Fastly.

Last month, Fastly closed its acquisition of IT security company Signal Sciences. Signal has developed products that are used to protect web apps and application program interfaces, or APIs, which are used by developers to, among other things, allow different types of devices to communicate with each other and make apps.

A Closer Look at FSLY Stock

Developing apps is important in the tech world. A key reason for Fastly’s success is that its systems are easy for developers to use. Therefore, it’s important for Fastly to ensure that it protects the APIs and web applications that developers use while they’re working in the edge environment created by the company.

Before launching Signal Sciences, the company’s founders developed IT security products for a major e-commerce website, Etsy (NASDAQ:ETSY).

Signal provides security to more than 40,000 web applications. It’s clear that Signal Science’s products are very widely used, suggesting that its products are strong and that it knows what it’s doing.

TikTok Isn’t a Huge Problem

TikTok is Fastly’s largest customer, accountingfor about 12% of its revenue last year. In my August 13 column on Fastly, I predicted that either Microsoft (NASDAQ:MSFT) or another American company would buy TikTok’s U.S. operations. I also put the odds of Fastly generating zero revenue from TikTok next year at about 5%.

It now appears that a deal  that would prevent TikTok from being banned in the U.S. in the wake of an order by President Donald Trumpnis indeed close to completion. Specifically, Oracle (NYSE:ORCL) and Walmart (NYSE:WMT) have agreed to obtain a total stake of 20% in TikTok’s U.S. business, and Trump said he had “approved the deal in concept.”

While The Wall Street Journal stated that “the parties are still finalizing their agreement” and are awaiting final approval from Beijing and Washington, it appears that the transaction will get done, assuming that a court does not strike down Trump’s decision to ban TikTok.

Alternatively, if Trump is not reelected, TikTok will probably be able to keep litigating the issue until he is out of office, and the Biden administration would likely rescind the ban.

But if the proposed deal turns out to be necessary, it would probably be approved by both governments because it gives both China and the U.S. the ability to say that they achieved their main goals.

China can note that ByteDance, TikTok’s China-based owner, retained a majority stake in TikTok’s U.S. operations, while the U.S. can point to Oracle’s promise to safeguard the security of U.S. users from the app.

Fastly’s Technology and Growth Outlook

According to TheStreet, Fastly’s edge technology will become absolutely necessary as the Internet of Things (IoT) expands because the cloud will not be able to effectively handle all of the IoT data. The edge facilitates “smart devices” by enabling them to be run by nearby servers.

Further, TheStreet reported that “the edge market was estimated between $1.7B to $7.9B in 2017, and is projected to grow to $16.5B to $43.4B between 2025 and 2027, producing a compound annual growth rate of between 11%-37%.”

Fastly is one of the leading providers of edge infrastructure, and FSLY stock has a market capitalization of $10 billion. Since the company’s total available market is expected to reach $30 billion (based on the midpoint of the estimate range) in seven years, I think the shares can advance tremendously.

The Bottom Line on FSLY Stock

Fastly’s recent acquisition appears to have improved the security of its products, while it will almost certainly not lose any of its revenue from TikTok.

Finally, given the need for edge computing going forward and Fastly’s strong position in the space, the company is poised to continue growing rapidly.

On the date of publication, Larry Ramer held a long position in Fastly. 

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

Article printed from InvestorPlace Media, https://investorplace.com/2020/10/two-good-pieces-of-news-flsy-stock-appealing/.

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