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Fastly Buys Up App Security Firm Signal Sciences

Signal Sciences' customers include Under Armour, Twilio and DoorDash.
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Fast-growing content delivery network Fastly is acquiring a security firm as it seeks to expand its technology portfolio and customer base. 

The company announced its acquisition of app security firm Signal Sciences for $775 million in cash and stock in a press release on Thursday. 

Shares of Fastly  (FSLY)  rose 6% to $95.11 in intraday trading.

“Fastly was founded to meet developers’ need for greater visibility and control. Now, as the digital transformation movement continues to accelerate, DevOps teams are struggling with inadequate and inflexible security tools,” said Fastly CEO Joshua Bixby. “Together with Signal Sciences, we will give developers modern security tools designed for the way they work."

Signal Sciences is Fastly's second-ever acquisition since it was founded in 2011, according to Crunchbase. 

Fastly competes with Cloudflare  (NET) , Akamai  (AKAM)  and others in offering content delivery services to websites and apps. But its stock has vastly outperformed the market this year, rising more than 340%, in part because of high-profile customers such as TikTok and Shopify  (SHOP)

In its most recent earnings report, Bixby revealed that TikTok, the popular social app currently in talks with Microsoft  (MSFT) , Walmart  (WMT) and others about buying its U.S. operations, was its largest customer. 

Fastly said that TikTok accounted for 12% of its total revenue in the second quarter, raising concerns that its financial performance is overly reliant on a single app that's tied up in a geopolitical battle. 

Weeks ago, the Trump administration signed an executive order seeking to ban all U.S. transactions with TikTok, owned by Chinese tech firm ByteDance, unless a U.S. firm buys it. 

In the meantime, Fastly has sought to differentiate its business from that of its competitors, saying it is more programmable and agile than others. 

On an conference call on Thursday, Bixby also said that the acquisition of Signal Sciences could boost Fastly's financial results. Signal Sciences has 265 customers and 60 enterprise customers, he said, 70% of which will also be new customers for Fastly. 

"They have some of the best known brands, including Duo Security, Datadog, Under Armour, Twilio SendGrid, and DoorDash," Bixby said. "They also have five of the top e-commerce companies, five of the largest software companies, and many others in the financial services, retail, healthcare, media and entertainment, manufacturing and educational sectors." 

In a note earlier this week, analysts at Raymond James upgraded Fastly's stock to outperform from market perform with a $100 price target.

"Our technical dive gives us confidence that Fastly's software-defined network offers top-notch performance and that Fastly has created sustainable product differentiation with its programmable platform built for developers," wrote Raymond James analyst Robert Majek.