Not so Fastly

[captainccs]

A lot of harsh words have been written after Fastly’s fall from grace. I’m still bullish on the company because for me the story has not changed. BTW, my FSLY position at $67.53 with the help of covered calls is in the black.

My Fastly Story

I didn’t buy Fastly for the CDN. I never bought Akamai. I bought Fastly for Edge Computing. I’m a firm believer that my investing results are the product of my own decisions, good or bad. If I made a wrong decisions with Fastly it was buying too early, a bad habit of mine, because their Edge product was still in beta, it had not yet been industry approved. The reason for buying early (June 22) was because FSLY kept coming up as one of the best covered call candidate yielding over 4% per week in at-the-money premiums.

When covid-19 hit I started rearranging my portfolio starting with Zoom and Teladoc (1-30) and later Livongo (7-17). I need to diversify and Fastly’s Edge future seemed a good fit. In September I added Tesla.

What attracted me to Fastly as a long term hold (in addition to selling calls for income) was the new CDN architecture expressly designed for the 21st Century web. Akamai’s architecture (copied by all other CDN providers) was designed for an early web that Mostly delivered static content. Starting with AJAX the web became more and more interactive with processing moving from servers to the edge (client browsers). At the same time there was a huge increase in IoT devices – counted by the billion – which are also at the edge. By 2020 IoT devices outnumber humans by four to one. By 2025, by an estimated ten to one. Fastly’s CDN architecture is the kind of disruptive innovation that creates fortunes as incumbents have a hard time catching up.

The Tik-Tok Debacle

Tik-Tok is a perfect example of why 10% clients are risky, not to say dangerous. What motivated Tik-Tok to move away from Fastly is debatable. It could just as easily be business as political reasons. From my story’s perspective, is Tik-Tok a better fit for Akamai’s old architecture or for Fastly’s new architecture? Let’s just say that Tik-Tok is large enough and simple enough that it can use a vertically integrated CDN. Don’t expect any provider of anything to have 100% market share, it’s just not realistic.

A great many explanations have been given for the Tik-Tok Debacle. The one that bothers me the most is the charge that Fastly is not founder driven because the founder is no longer the CEO. That charge would be valid had Artur Bergman left the company but Artur Bergman is the Executive Chairman & Chief Architect. Not every founder is a businessman like Jeff Bezos and Elon Musk. When I founded my first company my partner was the salesman and I was the administrator and we were both the technocrats.

My view is that the problem has a lot more to do with Tik-Tok than with Fatly’s Edge future.

What Now?

I’ll say it again, Saul’s decision to sell makes perfect investing sense. But it is not the sole reasonable action. What counts is not the past but the future. Is the Fastly story broken? If you think so, by all means sell. My opinion is that the Fastly story is just beginning but one has to consider Mr. Market. Clearly Mr. Market’s current opinion is very negative. FSLY has already fallen by 50% but, as I note earlier, organic growth, omitting Tik-Tok, is north of 43%. That is not the sign of a dying enterprise, for me that 43% is enough to consider FSLY a growth stock. For the time being I’m using FSLY for income producing covered calls.

Let’s never forget that the portfolio is not about being right or wrong but about economic freedom and supporting a lifestyle.

Denny Schlesinger

Ajax (also AJAX /'e?d?æks/; short for “Asynchronous JavaScript and XML”)[1][2] is a set of web development techniques using many web technologies on the client side to create asynchronous web applications.
https://en.wikipedia.org/wiki/Ajax_(programming)

The IoT Rundown For 2020: Stats, Risks, and Solutions

How many IoT devices are installed worldwide:

In 2018       there were 7 billion IoT devices in 2018
In 2019       the number of active IoT devices reached 26.66 billion
Every second  127 new IoT devices are connected to the web
During 2020   experts estimate the installation of 31 billion IoT devices
By 2021       35 billion IoT devices will be installed worldwide
By 2025       more than 75 IoT devices billion will be connected to the web

https://securitytoday.com/Articles/2020/01/13/The-IoT-Rundow…

Mr. Artur Bergman – Co-Founder, Exec. Chairman & Chief Architect
https://finance.yahoo.com/quote/FSLY/profile?p=FSLY

[Texmex]

So after the EC I had reduced my position and I had explained it here:
https://discussion.fool.com/great-discussion-on-fastly-here-is-m…

Just got done reviewing the call and noticed a couple of things not discussed in the posts here:

1. Fastly shared a lot of info. They said Tiktok was 12% of rev for Jan-June 2020 and 10.8% of rev for Jan-Sep 2020. Simple math shows Tiktok contributed 16.5M in rev. for the first 2 Qs (combined) and 22.5M for the 3 Qs (combined). So, Fastly made 6M from Tiktok this Q.

2. If Tiktok had been a customer growing at around 10% QoQ then they should have contributed about 9M rev this Q instead of the 6M (actual). Or in other words without the Tiktok issue Fastly should have made 74M, i.e. a rev growth of 48%. This is better but still slower than what most would have expected. Management explained that they expected some customers to bring in new traffic towards the end of Q3 which did not happen. Management did say that most of that traffic has come back on in Q4 except for some related to DC delays in South Asia due to Covid-19.

3. The very low NRR which is calculated based on the last month of the quarter suggests that Tiktok spent very little in the last month and probably likely spent very little in October as well. Now, if Fastly does 84M rev. in Q4 and we take out the 8M coming from Signal we get 76M. In Q3 if we back out the Tiktok contribution we get 65M. So, Fastly is projecting the business to grow about 17% QoQ in Q4. This is about the same rate they did in 2019. So, management’s claim that most of the traffic that did not come in late Q3 has come back in Q4 seems plausible. I am willing to give this company some more time. My reduced position has come down to just above 3%. Bixby said there they will be doing 4 investor calls shortly. I am sure we will get more clarity about all of this.