Fastly Plunges on TikTok-Related Sales Hit, Analyst Downgrades

Fastly plunges after revealing its biggest customer, TikTok owner ByteDance, spent less than expected in the third quarter, prompting several analyst downgrades.

Shares of Fastly  (FSLY) - Get Fastly, Inc. Class A Report plunged Thursday after the cloud platform provider said its biggest customer, TikTok owner ByteDance, spent less than predicted in the third quarter, and as analysts moved to downgrade their ratings on the stock.

Fastly shares were down more than 28% in early trading Thursday after the cloud-services company warned on Wednesday that third-quarter revenue will fall short of analysts' forecasts. Fastly said it now expects revenue of between $70 million and $71 million, compared with previous guidance of at least $73.5 million.

The declines were exacerbated by downgrades from several analysts, including Baird's William Power, who cut his recommendation to neutral from outperform and lowered his one-year price target to $85 from $105. Stifel analyst Brad Reback also downgraded Fastly to hold from buy and lowered his one-year price target to $77 from $98.

As of late morning, Fastly stock was down 23.35% at $94.42.

“Due to the impacts of the uncertain geopolitical environment, usage of Fastly’s platform by its previously disclosed largest customer did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer,” Fastly said in a statement.

Fastly's biggest customer is known to be China-based ByteDance, the current owner of the popular video-sharing app TikTok, which the Trump administration has called a "significant threat" to U.S. national security. 

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President Donald Trump on Aug. 6 issued an executive order giving the popular video-sharing app 45 days to either sell its operations to a U.S. company or face a ban. TikTok has sued the Trump administration over the order.

While Oracle  (ORCL) - Get Oracle Corporation Report and Walmart  (WMT) - Get Walmart Inc. Report have agreed to take a stake in a reorganized TikTok, ByteDance is still working out the details with U.S. regulators.

Fastly has been negatively impacted by its dependence on ByteDance before. In August, the company’s shares fell after CEO Joshua Bixby told analysts ByteDance accounted for about 12% of Fastly’s revenue over the previous six months. Less than 50% of that revenue was from the U.S.

“The current global environment has in some ways fueled our business, but has also created areas of uncertainty,” Bixby said in Wednesday's statement. “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 has been among the biggest beneficiaries of this year's stock market rebound, with its shares gaining more than 500% as a result of increased internet traffic due to pandemic-related stay-at-home measures.