Story Stocks®
Updated: 22-Jun-20 14:07 ET
Fastly, poised to capitalize on accelerating digitization trend, races to new highs yet again (FSLY)
- Fastly (FSLY), a provider of an edge content delivery network (CDN), is soaring higher again today on continued bullish momentum. Since the company reported an impressive beat-and-raise 1Q20 report on May 6, the stock has launched parabolically higher, up an astounding ~200%.
- The meteoric gains are tied to the company's positioning as a primary beneficiary of rising internet usage and the rapid digitization of businesses. These trends have been turbo-charged during the pandemic.
- FSLY operates an edge cloud platform, which essentially means that its servers are physically positioned away from traditional data centers, in order to increase data transmission speeds and improve security and reliability.
- The work-from-home and remote-learning transitions that developed as a result of COVID-19 fueled a surge in internet usage. At the same time, stay-at-home rules forced businesses to rapidly ramp up their digital capabilities. Both of these scenarios resulted in strengthening demand for FSLY's platform.
- Key metrics from FSLY's Q1 report bear this out. Revenue climbed by 38%, driven by a 6% sequential increase in average enterprise customer spending to $642K. Its enterprise customer count also increased to 297 from 288 in 4Q19.
- While FSLY believes the remote-learning catalyst will diminish, the company also believes that the big-picture, longer-term trend is squarely in its favor. Specifically, the digitization of organizations and its relationships with leading innovators will remain a key growth driver for the foreseeable future.
- During its Q1 earnings conference call, CEO Joshua Bixby stated that leading internet-based customers like Shopify (SHOP), Slack (WORK), Spotify (SPOT), and Stripe are coming out of the health crisis even stronger. The success of companies like those will funnel through to FSLY's performance.
- The rally has made the stock significantly more expensive with a 1-year forward P/S of ~9.4. However, it's still trading at a steep discount to peer Cloudflare (NET), which is trading at ~22x expected FY21 revenue.
