Perspective

Investment Analysis Clubs Saul’s Investing Discussions
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Looking back on this board to about a year ago, I can see that there was a company receiving heavy criticism similar to what Fastly is receiving today. There were more than a few negative opinions of management and the direction of the business in general. The stock had sold off from the $140’s to around $100 a share. Many here decided to sell. The stock was Twilio. Today the business seems fine and the stock is selling for over $300 a share.

This is not a prediction for the future share price or the future direction of Fastly’s business, but I will keep my relatively small position for the time being and possibly add a bit depending on what I hear from management when they report earnings. I’m likely to give this at least a couple of more quarters to see if their issues are short term or not. Growth for this quarter is still expected to be around 40%, so it’s not a disaster by any means.

The above is not meant as a recommendation for anyone else, it’s just the way I do things. I tend to wait a bit longer than some before I make buy or sell decisions and it has worked fairly well in the past. The information and insights provided on this board are just fantastic! Many thanks to Saul and all of the other wonderful contributors here!

Don

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other notable examples: SHOP, TTD

AYX not yet back but it is going to get there and beyond. So will FSLY.

tj

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You can also add MDB, ZS, and SQ to that list. All companies that have been high conviction stocks on this board in the past. They have been sold for better opportunities when the ruthless investment style called for it. Even though I have the feeling that this ruthless investing style is throwing out the baby with the bathwater at times, in most cases, the sell-decisions were very profitable because the companies were replaced with great alternatives. This just goes to show the incredibly skilled stock-picking on this board.

I have never owned Fastly but for me, it is a very different story than Twilio’s. It starts with Twilio being founder-led by a very good CEO. They are the first mover and clear market leader and seem to have a strategy to become a dominant player in cloud-based communication. There is a great recent article on Seeking Alpha about their journey as a company (https://seekingalpha.com/article/4380192-twilios-next-act-ex…). This has been published after Jeff Lawson pulled off a huge acquisition – Segment. It surprised many industry insiders that they made this happen because Segment was very successful on its own (and probably could have successfully IPO’ed at an even higher valuation). It’s also a positive sign and a vote of confidence by Segment’s owners that it was an all-share deal. They clearly see the potential of the combined company. As we see now, Twilio also did a great job acquiring SendGrid not so long ago.

I think that Twilio is a juggernaut business in the making which is why I own a big position. I also own sizeable positions in SHOP, MDB, OKTA, ZS (although I sold half when they had their sales troubles), and even AYX (although I took advantage and sold most when they popped after raising guidance but changing CEO). I think it’s fair to say that I’m not as ruthless as many on this board and tend to hold on longer when I believe in the company’s competitive position. But Fastly? As I said I never owned it. But I would have sold this when the situation presented itself: The big guidance miss, a new CEO (that is not the founder) dropping the ball big time in his first year (or even quarter?!), these discussions about losing their biggest (and probably fastest-growing) customer TikTok, competitive threats left and right. At least I hope I would have sold…

Just remember that this stock was around $20 not too long ago. Maybe it was undervalued then but surely with what we know now it was also overvalued above $100. I certainly felt for the business that Fastly operated in, which is incredibly competitive, the multiple was way too high at $100 and above. I don’t know. Maybe they will come back. But there are definitely more convincing stocks out there.

Best
Niki

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Looking back on this board to about a year ago, I can see that there was a company receiving heavy criticism similar to what Fastly is receiving today. There were more than a few negative opinions of management and the direction of the business in general. The stock had sold off from the $140’s to around $100 a share. Many here decided to sell. The stock was Twilio. Today the business seems fine and the stock is selling for over $300 a share.

“Perspective” is a good title for this thread. Your perspective is with 20-20 hindsight. Saul’s had a different perspective and to date the stock has fallen a lot so not a bad call. He also said that if selling was a mistake he could always buy it back. In addition, what counts is how his portfolio does going forward.

As I posted earlier, I haven’t sold my FSLY position but I have changed tactics to selling covered calls. The only reason I’m saying this is because I think both of us me the right decision for each of us. As they say, YMMV! :wink:

Saul asked to give FSLY a rest. I agree. At least until earning when we’ll have new data to talk about.

Denny Schlesinger

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I am going to share my thinking of late, which is – be careful about following the crowd (even this crowd) or any person that I like or admire in and out of stocks. I really need to think for myself in all of these investing choices – it’s my family’s money on the line here.

And, I will say that I love so many people here and I love a good stock pitch / stock discussions. It is easy to get swept up in emotion in investing, even here, maybe especially here because we have a great group of people with oftentimes very strong opinions.

I sometimes find myself really following certain people, and this is MY FAULT. So one of my mantras has to be: “slow down and think for yourself”. I admit that portions of my investing journal are swept up with XX is doing this, YY thinks that. This is well and good and part of my strategy is to hang out with and listen to the smartest people I can find – but I don’t get stronger and better unless I am thinking for myself.

Now, going slow can sometimes suck as you watch a stock collapse or explode in a few days, but most of the time slow and steady works just fine.

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I am learning so please be patient with me. The real question is/are:

Has the story changed for Fastly and do we need for earning call to understand that, or has that information been available to us in Q2 and in between?

My thinking is: Yes it has changed, at least form my perception:

  • It has changed at the moment the founder led CEO was replaced with a rookie CEO with no proven experience leading and expanding sales teams and capturing new markets

  • The blood was in the water in Q2, simply nobody paid attention to the low number of clients as a whole in relation to other similar plays like Cloudflare, extremely low conversion of enterprise level clients ($100k+) - only 7 for 1 quarter, vs Cloudflare 80 (11 times difference)

  • They are loosing business to other companies, it is TikTok, but it is most likely other players as well, some are speculating this can be also Amazon/Shopify (unconfirmed yet). That means their business and story are not that sticky, which speaks volume.

  • Are there significant threats? Yes, there are. Biggest one is Cloudflare, Fastly is mentioned in their investor relation presentation as a limited company with 1 point solution - so Mathew Prince is after them

  • Red Flag #5 from their Q2 earning call, there was an analyst asking about the leave of one of their Head Sales People/VP of Sales? The CEO response speaks volume again:

“So not feeling a sense of urgency in the sense that that’s an important role to fill, but we’re going to fill it with the right person. And we have ample time to do that.”

Above is the framework of my thought process and analysis on everything I know now. So following Saul’s principles and what I am learning is enough for me to make an educated decision, the story has changed.

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I’m really hesitant to post again about Factly but I want to play the other side of this coin as this thread is about perspective and thinking things through. Please know I, and most of us, are aware that these points can be argued so please do not reply with point-by-point counter-arguments. This is intended as illustrative. Reality is not so black and white and just because I am posting counter arguments does not mean I disagree with the points in full but rather my thinking is likely weighted somewhere in between, in the grey:

> My thinking is: Yes it has changed, at least form my perception:

All things change. We are trying to figure out if there are fundamentally damaging changes versus business events that happen through which we lean on the health of the company to beat and get past.

> * It has changed at the moment the founder led CEO was replaced with a rookie CEO with no proven experience leading and expanding sales teams and capturing new markets

It is a change. A CEO can not change the hearts, minds or habits of an entire department, with its own existing leadership, that fast. Also the last CEO is still around and in a leadership position. I think this can be dismissed for current events but could be a concern to watch as a shareholder going forward. In other words this is just a theory right now that needs proving to be a factor for negative fundamental change.

> * The blood was in the water in Q2, simply nobody paid attention to the low number of clients as a whole in relation to other similar plays like Cloudflare, extremely low conversion of enterprise level clients ($100k+) - only 7 for 1 quarter, vs Cloudflare 80 (11 times difference)

I think many people did pay attention to this information. There are countless posts on the different business models and plenty of talk about why Fastly spends less on sales and marketing and runs a small team. The fact is the customer growth and average spend are accelerating at Fastly. Comparing to their own past paints a rosy picture, even if the numbers feel small. Even without TikTok I believe they are accelerating.

Comparing numbers to Cloudflare needs way more context. It is not a waste of time but due to their different approaches it needs to be a deeper dive to adjust and compare apples-to-apples and I’m not sure we have the inside info to do that effectively. There are other factors too, like market cap and TAM. I think Cloudflare’s TAM is bigger since they aren’t as niche, for example. This may be a neutral point, or good, or bad…not getting in to the pros and cons here.

Keeping it simple: On this one I see improvement over a past which yielded some pretty nice revenue growth, in spite of us thinking those numbers look low. If they keep making more money, that is proof enough for me.

> * They are loosing business to other companies, it is TikTok, but it is most likely other players as well, some are speculating this can be also Amazon/Shopify (unconfirmed yet). That means their business and story are not that sticky, which speaks volume.

“Speculating” is the key word here. We don’t actually know anything for sure. We suspect based on anecdotal evidence, which does seem strong, that they may have lost some business. BUT, we don’t know the facts, or the true impact should some or all end up to be fact The next quarterly report and Q&A should help a lot here.

On this one I think we all saw the news that there was a real chance 6-12% of their previous revenue source could go away and are hoping they can backfill this with continued growth. If their average spend and customer growth continues to accelerate then the company can dig itself out of the concentration risk a bit more. We should still expect customer concentration but the risk should be reduced as long as things continue the way they have.

> * Are there significant threats? Yes, there are. Biggest one is Cloudflare, Fastly is mentioned in their investor relation presentation as a limited company with 1 point solution - so Mathew Prince is after them

Skipping this one for brevity. Short version: Nothing has changed on the competition front to become a con to me.

> * Red Flag #5 from their Q2 earning call, there was an analyst asking about the leave of one of their Head Sales People/VP of Sales? The CEO response speaks volume again:

“So not feeling a sense of urgency in the sense that that’s an important role to fill, but we’re going to fill it with the right person. And we have ample time to do that.”

I don’t see an issue here. In fact I think it is prudent AND I think it supports the CEO counter argument as well as the one after that. They have a small but strong sales team that is doing just fine. Taking time to get the right person to jive with the existing team and blaze the right trail seems fine.

When earnings comes out we may see a reversion to revenue growth in the mid 40s plus some bad news about customers and that may send the price lower. Or it could be baked in with recent news being digested and things could stay the same; or pop. I never know what the market is going to do to the price so I’m just trying to focus on figuring out if there is fundamental change versus…well, life happening.

I’m somewhere between selling it all and holding it all…I can certainly see the logic for keeping it simple and watching from the sidelines or doing nothing and waiting for more information, or anything in between. This is where perspective and personal choice comes in!.

While I am truly skeptical that things have fundamentally changed in the last month, I won’t ignore this awesome community’s thoughts either! It is a matter of respect and keeping an open mind. It is a meaningful datapoint. It is why I choose to lighten my holdings. It isn’t mathematical. I feed my brain with as much info as I can and then I simply open my portfolio view and look at where I feel I am. Just because I use the word “feel” does NOT mean it is emotionally charged. I mean “feel” as in using one’s hand to feel a texture rather than the “feel” in “feelings”. I strongly believe all the data I feed in to my mind builds an intuition and THAT is what I am tapping into to when I sit down to make a final decision. Then what I am deciding is as simple as, “does this % match my conviction”. Since - if I am honest with myself - my conviction is a little shaken here, I’ll just reduce my holdings to what feels right. I can live with that regardless of the outcome. Then, live, learn, rinse, repeat.

If you read to here and are itching to reply, please read my opening paragraph again first :wink:

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I want to play the other side of this coin as this thread is about perspective and thinking things through. Please know I, and most of us, are aware that these points can be argued so please do not reply with point-by-point counter-arguments.

How is do-as-I-say-not-as-I-do and don’t reply point-by-point to my point-by-point reply a useful way to discuss the investing merits of a company?

Lee

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Feel free to post as you see the need of course. I’m not the keeper of the board. I was being sensitive to the request to hold off on more Fastly debate and I so didn’t want to spark a debate within this thread. My intention was only to illustrate there are counter-points. I nearly didn’t post and perhaps I shouldn’t have. However, I thought I could keep it within the context of this thread, which is more about different perspectives, and make the focus of the reply my concluding thoughts. Most Fastly-specific points, if not all, came up in much more detail in other threads.

Note even with these counter-points in mind, I did end up taking some defensive action because it felt right in the end. My perspective landed somewhere in the middle of many others. I ended up reducing my position in Fastly from 10% to 7% this morning and adding the funds to Crowdstrike to bring it back up to 2nd place in my portfolio at 16% (behind Zoom @ 19%). Cloudflare is now in 3rd at 15.5%, having risen organically. 7% is still not very small for me, though it is my smallest of 8 now. I may take further action after digesting what the company reports later this week.

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