After Fastly (NYSE:FSLY) recently reported its third-quarter results and Joe Biden was declared the winner of the U.S. presidential election, I continue to believe that investors’ concerns about Fastly stock are overdone.
Specifically, statements by Fastly’s CEO, Joshua Bixby, along with Biden’s victory in the election, have left me convinced that Fastly’s largest customer, TikTok, will resume using its products by the beginning of next year.
Further, Fastly’s Q3 results and other statements by Bixby indicate that the company’s overall business continues to be very strong.
A Closer Look at Fastly Stock
When asked directly, Bixby declined to say if he expects TikTok to start using Fastly’s products in the near-term or even why the Chinese company stopped doing so, one of his answers clearly indicates that the separation of the two companies is likely to be short-lived.
Bixby blamed regulation saying that the possibility of a TikTok prohibition made other potential customers wary.
He also suggested that, because of TikTok’s decision to abandon Fastly, the Chinese firm would lose the ability to carry out certain functions, including the facilitation of cash transactions at the Edge. TikTok may also lose speed and its security could become less tight, Fastly’s CEO explained.
Based on these words, I believe that Bixby was strongly implying that President Donald Trump’s ban of TikTok was the reason for the latter company’s decision to temporarily part ways with Fastly. Consequently, it’s clear to me that the separation was not, as some have speculated, caused by TikTok’s desire to go with its own platform or save money.
And given Biden’s history of praising, working closely with, and generally avoiding confrontations with Beijing, I fully expect he will quickly lift the ban on TikTok. That, in turn, should result in the Chinese company returning fully to Fastly’s platform in the first quarter of 2021, sparking a rally by Fastly stock.
Fastly generally reported impressive Q3 earnings. Its sales jumped 42% year-over-year, and it added around 100 new customers in Q3, including a net total of 11 very large companies. The number of customers added by Fastly in Q3 was the second-largest such total in a quarter since it was founded.
Among the companies it added were “one of the largest sportswear and footwear retailers in the U.S. and a national U.S. automotive parts provider.” Moreover, despite TikTok’s move, Fastly’s average revenue per customer rose 6% in Q3 versus Q2.
Fastly’s Future Still Looks Very Bright
Fastly’s tools help developers. Seeking Alpha columnist Bert Hochfeld recently concurred with my belief that the company’s technology should continue to spark strong sales growth for it going forward, saying it improved user experience.
“Edge is a better performing architecture for many things that developers want to do in order to enhance end-user experience and to minimize performance bottlenecks,” Hochfeld wrote, adding that Fastly was technologically superior to its competitors.
Additionally, in recent columns about Fastly stock, I’ve predicted that the company’s acquisition of IT security provider Signal Sciences would increase the appeal of its products.
That scenario does indeed seem to be materializing, as Bixby stated that he is seeing strong demand for an upcoming product which combines the offerings of Fastly and Signal Sciences.
The Bottom Line on Fastly Stock
TikTok’s decision to temporarily stop using Fastly’s products due to Trump’s ban was just a small bump in the road for the American tech company. Meanwhile, Fastly’s growth metrics remained strong in Q3, and its powerful technology leaves it well-positioned to expand very rapidly in coming years.
With Fastly stock trading at a reasonable market capitalization of $7.75 billion following its recent pullback, and sporting a not-too-steep forward price sales valuation of 30 times, I recommend that longer-term investors buy the shares.
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 Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.