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Should You Buy Fastly Stock Now?

By Anders Bylund – Jun 24, 2020 at 7:01AM

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The content delivery and edge computing expert is skyrocketing in 2020, and the company has virtually endless stretches of runway available for further growth.

Cloud computing specialist Fastly (FSLY -3.49%) is on a roll. The stock has quadrupled in value over the last quarter and continues to set new all-time highs nearly every day. Share prices doubled in May alone.

Fastly's combination of edge computing services and content delivery network (CDN) tools positioned it to excel in the remote-work and safer-at-home policies of the COVID-19 pandemic. Is it too late to buy into this exciting growth story or are Fastly's market-stomping returns in early 2020 just the start of even larger gains in the long run?

What Fastly does

Fastly's CDN services are a drop-in replacement for sector leaders Akamai Technologies (AKAM 4.38%) or Limelight Networks (EGIO 2.88%). The company's CDN can't hold a candle to the much larger global networks of Limelight and Akamai, but Fastly makes up for that shortfall by offering a wider selection of network management tools. Fastly is best known for its edge computing services, which allow clients to process data in real-time.

88% of Fastly's revenues come from the enterprise division, where the average customer spent $642,000 on Fastly services over the last year. Many of these large customers are using Fastly's edge computing tools to provide strong security and strict authentication on their media streams.

"We believe the modern architecture of our edge cloud platform allows us to meet the compute and performance requirements of today's data-rich applications and the demands of the agile developers who build them," the company wrote in last month's first-quarter earnings report.

An office worker hangs on to his desk as it takes off on wings and jet-powered rockets

Image source: Getty Images.

Extra rocket fuel

The pandemic accelerated Fastly's growth in the first quarter. On a broader scale, the company taps into the cord-cutting trend in a very direct way. Akamai and Limelight may carry a larger share of the traditional media delivery market but Fastly is tracing its own path into brand new market segments.

For example, e-commerce platform specialist Shopify (SHOP 3.04%) relies on Fastly's content delivery and edge computing services. Shopify values this platform thanks to its real-time data management and system troubleshooting abilities. How important is Fastly's technology to Shopify's business? Well, Shopify announced a deep e-commerce relationship with Walmart (WMT 2.18%) last week. Shopify's stock rose as much as 8.7% that day. Fastly's shares zoomed 11.8% higher on the same news. Investors saw the Walmart deal as a bigger game-changer for Fastly than it is for Shopify.

Fastly's corporate logo in red.

Image source: Fastly.

Where can Fastly go from here?

Fastly's stock is skyrocketing despite annualized sales of just $218 million and negative profits. Investors are expecting the top-line gravy train to continue for many years to come, and for good reason. The company commands vanishingly small slivers of the $12 billion CDN market and the $116 billion software-as-a-service (SaaS) sector.

This isn't a cheap stock by any reasonable measure, but these share prices may very well be the lowest ones we'll see for the foreseeable future.

The road ahead might be rocky and I wouldn't be surprised to see some volatility in the quarters ahead. This stock could make you rich as long as you hold on to your shares through that turbulence and buy more Fastly stock on sudden dips along the way.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fastly and Shopify. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Fastly, Inc. Stock Quote
Fastly, Inc.
$8.84 (-3.49%) $0.32
Akamai Technologies, Inc. Stock Quote
Akamai Technologies, Inc.
$83.84 (4.38%) $3.52
Walmart Stock Quote
$132.53 (2.18%) $2.83
Edgio, Inc. Stock Quote
Edgio, Inc.
$2.86 (2.88%) $0.08
Shopify Inc. Stock Quote
Shopify Inc.
$27.76 (3.04%) $0.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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