On Wednesday after hours, Opportunities stock Fastly rose +2% after reporting in-line Q3 earnings and guidance.
We believe the price action reflects easing investor concerns around its pre-announcement several weeks ago, when it reduced guidance after seeing spending reductions from its largest customer, TikTok.
Our top 3 takeaways from the quarter are below:
Management signaled that the core driver of spending cuts at TikTok were (as expected) broader political uncertainty around whether TikTok would be able to continue its operations in the US.
The implied incremental weakness outside of TikTok also turned out to have a lot more bark than bite, and were attributed to timing fluctuations not expected to impact business beyond the Q4 quarter.
We see reduced uncertainty around TikTok's future as a potential source of near-term upside for Fastly, but do not see it as a core driver of Fastly's long-term thesis. Which brings us to our second takeaway…
Beneath the Q3 noise, Fastly's core business and product-led growth thesis remained strong as ever.
This was most evident in the outstanding dollar-based net expansion (DBNER) numbers the company posted in the quarter, which rose an impressive 10% sequentially to 147%.
This number represents a key metric for software businesses, as it loosely shows how aggregate spending from "existing customers" is trending, making it a great window through which to assess the strength of Fastly's product suite.
Customer growth also remained strong as Fastly posted the second-highest quarter of new customer additions since it went public.
We believe these two metrics are key levers to Fastly's long-term growth algorithm, and are why the company should continue to perform regardless of spending at any particular customer.
With its outstanding value proposition and core enterprise penetration / customer wallet share both still in single digits, we're optimistic on Fastly's long-term growth outlook.
In its earnings release, Fastly quietly announced that its edge compute product, Compute@Edge, was finally moved out of beta and has been receiving positive feedback from its initial production customers.
As we've highlighted before, we see Fastly's potential in the rapidly growing edge computing vertical as a major secular growth opportunity, and look forward to seeing it develop into a bigger piece of the company's narrative amongst investors.
Learn with titan
Become the smartest investor you've ever been through straightforward, easy-to-read investment articles.
Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. The introducing Broker Dealer is Titan Global Technologies LLC, a registered broker-dealer and member FINRA/SIPC. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. Contact: 508 LaGuardia Place NY, NY 10012. Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
© Copyright 2022 Titan Global Capital Management, Inc. All Rights Reserved.