According to Schwab, at 5:02PM last night, Fastly filed for the sale of 6,367,709 shares of common stock by current stockholders!!!
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Was that why they had to pre-announce revenue miss?
Current stockholders don’t want to wait for Q4 and acquisition. Rats leaving the sinking ship. This is really bizarre: announce a revenue miss one day and announce a large secondary by existing stockholders the next???
I’m flabbergasted.
Saul
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It’s an identical number of shares to the Signal Sciences acquisition: https://www.sec.gov/Archives/edgar/data/1517413/000151741320…
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I looked up the SEC filing, and it was a shelf registration, but still, it was very strange timing.
Saul
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"It’s an identical number of shares to the Signal Sciences acquisition: https://www.sec.gov/Archives/edgar/data/1517413/000151741320…
I’m not an expert in these matters, but from what I have read in other places - this is in fact the shares for the acquisition. This is so the Signal Sciences owners can sell their shares at some point in the future. From what others have said (on Twitter), this is standard practice.
FWIW - I sold another 25% of my shares. So, I’m now at 50% of what I had originally. Reason - I had these shares in a kids education IRA and did not want to potentially take a loss on them. FSLY is still a 5% position for me. Still thinking about what I want to do with the rest of my shares. Still leaning toward keeping them, but all the comments here are making me question my thinking on it.
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The purchase price for Signal Sciences is $200MM + $575MM in Fastly stock. In order to price the shares, they needed to file a S-3, which required disclosures. They removed guidance for Q3. Then they issued the shares to Signal Sciences shareholders. (talk about lawsuit…don’t do the disclosure and price the shares at ~$120 and not after market close yesterday…)
None of this is a surprise.
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There is alot of misinformation flying around and emotional selling. We saw the same with AYX and LVGO. The growth story for FSLY gas always been the Compute@Edge product that is being released soon.
The sec filing states “Fastly will not receive any proceeds from the selling stockholders.” The amount of shares is relatively in line with the stock portion of the Signal Sciences acquisition.($550mil)
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These are all existing shares, not new shares (i.e. no dilution), correct?
bnh91:
Any “misinformation” or misunderstandings on this board are resolved by the variety of viewpoints posted by this wonderfully diverse user group.
“Emotional selling” may be happening, but not by those who base their decisions on the company’s numbers and management communications.
The problem for me is the disconnect between:
- past and current facts as per the views of Saul, Stocknovice and others,
and - current and future prospects about Fastly’s technology as per the views of Muji and others on this board, as well as by Peter Offringa of Software Stack Investing.
I opted to go with the past/current arguments and sold all but 5% of my FSLY position, re-allocated to other companies well-known to this board. The 5% retention is because I can’t shake the technological argument. I really want reasons to go back into FSLY but the smoke has to clear first.
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RollerCoaster,
Thank you for the post. That helped me clear my thoughts. Your dichotomy well sums up the two conflicting views that had bothered me since Wednesday night.
Just based on the numbers, it appears that the company’s growth is not holding up to what most of us expected whatever the reason may be (inefficient sales, Tik Tok, use-based model etc). Also, as many pointed out it was clear that the new CEO is a tyro. His communication and execution were far from adept. The issue with management may become more prominent in the future.
However, the numbers constituted only half of my investment thesis. Just like many others here, I thought that FSLY’s technology has a great potential to change the world. My bull case was centered around what would happen in coming years with 5G and others, not just around the increase in data use from the pandemic.
It would not make sense to totally discard the investment thesis when it has not even fully begun…
That being said, I decided to trim a third of my still oversized FSLY position and allocated them to my other holdings. If the uncertainty is resolved after the earnings call, I will happily return to FSLY even at a higher price.
Mike L.
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RollerCoaster,
Yes, I see your points and understand why people may want to sell. But I am not sure selling after the 35% drop and dumping it into a company that has just popped 50% is the right thing to do. This is momentum investing based on the downsides of a usage based billings model and very few facts/change in long term company growth prospects.
Sidenote- I am not saying momentum investing is a bad/wrong thing to do.
Bnh91
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bnh91,
One of the central tenants of Saul’s teachings is to ruthlessly allocate capital and not be afraid to trim or even sell out completely if the story changes. The opportunity cost of holding on to what amounts to dead money for the next 6-12 months (or however long the story looks sub-par) in stocks like FSLY or AYX vs buying more of a stock with a much clearer, more promising narrative and much better fundamentals such as PTON or DOCU is the central issue here.
Whether a company just popped 50% or dropped 35% doesn’t matter much to me, at issue is whether I have a higher conviction in other stocks. Conviction typically comes from the numbers + the narrative.
For me, the reduced numbers were just as damaging as the poor executive decisions and lack of candor. The details that NET has been providing in its recent earnings calls vs FSLY has been particularly striking.
-Jeff
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Saul: According to Schwab, at 5:02PM last night, Fastly filed for the sale of 6,367,709 shares of common stock by current stockholders!!!
epnh: These are all existing shares, not new shares (i.e. no dilution), correct?
As best I can tell Fastly paid for Signal Sciences with 6,367,709 new shares and cash. The filing is to allow the new shareholders, not old insiders, to sell part or all of the shares they received in payment for Signal Sciences.
The sale of these shares is not dilutive. The acquisition of Signal Sciences might be dilutive. I have not done the numbers.
bnh91: Yes, I see your points and understand why people may want to sell. But I am not sure selling after the 35% drop and dumping it into a company that has just popped 50% is the right thing to do. This is momentum investing based on the downsides of a usage based billings model and very few facts/change in long term company growth prospects.
Not necessarily momentum investing. If Fastly’s story has changed for the worse – an opinion that I don’t share – then selling ASAP is the right thing to do because you have a loser on your hands! Keeping it in the hope it will bounce back won’t cure the problem.
As for buying growth stocks, waiting for it to drop to get a better price is a losing game. BTW, just because a stock goes up 50% it’s not a momentum play
What Is Momentum Investing?
Momentum investing involves a strategy to capitalize on the continuance of an existing market trend. It involves going long stocks, futures or market ETFs showing upward-trending prices and short the respective assets with downward-trending prices.
https://www.investopedia.com/terms/m/momentum_investing.asp
Denny Schlesinger
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Shares for the Signal acquisition. No surprise there. Routine. Will be interesting to hear some detail re TikTok usage. At the beginning of Q3, India banned the use of TikTok. I suspect it was this that caught them off guard as they were focused on the TikTok geopolitical apect as it related to U.S. revenue.
“As of April, TikTok had 610M downloads & 600M active users in India, about 44% of population & over 25% of global” - Slate. com
On the plus side, Signal Sciences revenue will be included in the Q4 and full year 2021 guidance. Also hope to hear that the soft launch of Compute@Edge is on track for this quarter. While it doesn’t begin to contribute greatly to revenue until H2 2021, it will be gaining traction and buzz as we move forward. BoA/ML believes that the C@E part of the equation is being under-estimated, most aren’t modeling, and could be significant.
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