Fastly's (FSLY) Q3 Earnings to Hurt from Lower TikTok Usage

Aniruddha Ganguly
·3-min read

Fastly FSLY is set to release third-quarter 2020 results on Oct 28.

Markedly, on Oct 15, the company released its preliminary results which were disappointing. Fastly’s top-line growth was primarily affected by lower usage of its platform by its largest customer Bytedance, the operator of TikTok.

For the quarter, the company now expects revenues between $70 million and $71 million compared with its previous guidance of $73.5-$75.5 million, provided on Aug 5.

Moreover, Fastly withdrew its previously provided guidance of an adjusted loss of 1 cent per share.

The Zacks Consensus Estimate is currently pegged at a loss of 1 cent per share, which has widened by a penny over the past 30 days. The company had reported a loss of 9 cents per share in the year-ago quarter.

Moreover, the consensus mark for the top line is currently pegged at $70.6 million, implying 41.8% growth from the figure reported in the year-ago quarter.

Markedly, Fastly’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 101.6%.

 

Fastly, Inc. Price and EPS Surprise

Fastly, Inc. Price and EPS Surprise
Fastly, Inc. Price and EPS Surprise

Fastly, Inc. price-eps-surprise | Fastly, Inc. Quote

 

Let’s see how things shaped up prior to this announcement.

Factors to Note

Fastly’s third-quarter results are expected to have suffered from lower usage by not only TikTok but also several other customers. Notably, TikTok accounted for 12% of Fastly’s revenues for the trailing six months ended Jun 30, 2020.

Markedly, TikTok suffered from political uncertainty after President Donald Trump threatened to ban it citing national security concerns.

Although lower usage has hurt Fastly’s growth in the to-be-reported quarter, demand for edge computing solutions is expected to have remain robust.

What Our Model Indicates

Per the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Fastlyhas an Earnings ESP of -300% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are a few companies besides Fastly worth considering as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

AMETEK AME has an Earnings ESP of +0.83% and is #2 Ranked. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alphabet GOOGL has an Earnings ESP of +7.40% and a Zacks Rank #2.

Apple AAPL has an Earnings ESP of +2.97% and is #3 Ranked.

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