Is Fastly Stock The Best Cloud Stock To Buy In The Stock Market Today?
Shares of edge-cloud computing company Fastly (FSLY Stock Report) have been on a tear this year. With the massive surge in web traffic during the coronavirus pandemic, the company has picked up plenty of new businesses on the way and saw its share price rise more than 1,000% from the stock market crash in March until it’s all-time high earlier this month.
We have started covering the stock as early as May and we have got to say that we are impressed by how well the stock has done this year. Despite the recent massive pull-back, the stock is still at least 100% higher than when we first discussed it.
The cloud computing company caught investors off guard when the management announced preliminary third-quarter revenue that was below its guidance for the period. After the epic bull run from, the stock fell way faster than its previous run-up. The stock has fallen nearly 40% since the announcement. But if you’re thinking of investing in FSLY stock during its recent dips, there are a few things you might want to know about what sent the stock spiraling downward and the potential it has.
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Don’t’ Let TikTok Discourage You From Buying Fastly Stock
The company’s share price took a dive when the management cut revenue guidance for the current quarter because of a reduction of business from TikTok. Just to be clear, they didn’t specifically say it was the company in the announcement. But we all know Fastly previously said TikTok has been their biggest customer. With a high-flying stock like Fastly, investors’ expectations were through the roof. You could say the stock is priced to perfection. So when there’s slightly negative news like that, there would be a swift reaction. Perhaps it’s an overreaction. But corrections in stock prices are normal. So, why isn’t this a red flag? Why should investors be opportunistic and consider buying the stock after its sell-off?
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Fastly Remains Fundamentally Strong
If you’re an existing investor in Fastly, I wouldn’t overthink this news. Whether TikTok leaves entirely as a customer or otherwise, Fastly provides a really, really necessary service for the companies that it serves. And in my opinion, I believe that the company could do just as well with or without TikTok.
“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.”- Fastly CEO Joshua Bixby
It’s also worth mentioning that though revenue estimates for the third quarter are lower than before, they still represent a growth of about 42% year over year. No matter how you want to look at it, the company is still flourishing.
Fastly Is Tapping Into Two Major Markets
If you have come across this stock before, you would know that it is a key player in the content delivery network (CDN) space. Analysts estimate the CDN market to be worth $22 billion a year by 2024. But arguably the real trick up Fastly’s sleeves is its edge computing capabilities. With edge computing, data and information can be processed closer to the devices where it’s needed, instead of at cloud servers further away. Edge computing aims to speed up content, ads, and other services.
Some see edge computing as a sector that could reach about $15.7 billion by 2025. The increasing adoption of Internet of Things devices will bring edge computing to the fore. With a head start in edge computing and CDN, Fastly has certainly positioned itself nicely for the future. Nevertheless, as with all things, major competitors like Akamai Technologies (AKAM Stock Report) are looking into these markets as well.
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Bottom Line
If you believe web usage will keep rising, then the big sell-off we saw this month brings the valuation to a more reasonable level. Of course, investors may be pondering whether FSLY stock will continue to slide. I’m not sure about you but a steep drop like this seems enough to offset the decline in expected revenue. Of course, it would be another story if this is not a one-off drop, but a sign of bigger things to come. But, it appears the company is still growing … fastly.
With the discount, FSLY stocks look much more appealing to me right now. Of course, nobody likes the TikTok saga. But the ongoing pandemic is not slowing down, and the rise of digitalization means that the demand for CDNs will remain robust in the foreseeable future. Now, that doesn’t mean that Fastly is an easy buy. Like many cloud stocks, the valuation may be difficult to swallow. But you could say the same of many big tech stocks many years ago. However, if you’re planning to wait until Fastly stocks look like a steal before you invest, perhaps a decline to the price we saw in May, you could be waiting a while. Is that even possible? I wouldn’t bet on it halving anytime soon. FSLY stock is still seeing fundamentals as strong as before.
