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Why Fastly Stock Is Falling Today

By Anders Bylund – Sep 11, 2020 at 12:53PM

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The content delivery network's largest customer may soon be forced to shut down its American operations, taking a large bite out of Fastly's revenue stream.

What happened

Shares of Fastly (FSLY 2.57%) fell as much as 6.4% on Friday morning. The content delivery network specialist counts Chinese social media network TikTok as its largest customer, and that revenue stream will dry up unless TikTok owner ByteDance finds a buyer for the American part of the service before Sept. 15. On Thursday evening, President Donald Trump said that he won't extend that deadline for any reason.

So what

Speaking to reporters while boarding a flight to Michigan, Trump didn't mince words.

"We will either close up TikTok in this country for security reasons, or it'll be sold," Trump said. "I'm not extending deadlines. No. It's September 15. There will be no extension of the TikTok deadline."

That statement lowered the possibility of completing a sale before the shutdown order takes effect.

One businessman declines a handshake being offered by another businessman.

Image source: Getty Images.

Now what

ByteDance is holding advanced negotiations with at least two groups to find a domestic buyer for the American part of its service, but the Sept. 15 deadline is drawing near and the talks have not resulted in a clear-cut deal yet. TikTok was reportedly close to announcing a winner between Microsoft and Oracle in August, but the Chinese government stepped in with new export regulations that would require government approval of any deal.

Oracle had a chance to provide an update last night in its first-quarter earnings report and analyst call, but CEO Safra Catz made it clear that the company wouldn't answer any TikTok questions.

TikTok accounted for 12% of Fastly's revenue over the last two quarters. Less than half of these sales were related to the American portion of TikTok's operations, so Fastly's exposure to the threatened shutdown of TikTok's domestic service works out to less than 6% of its total revenue.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fastly and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

Fastly Stock Quote
Fastly
FSLY
$9.59 (2.57%) $0.24
Microsoft Stock Quote
Microsoft
MSFT
$244.37 (-0.31%) $0.75
Oracle Stock Quote
Oracle
ORCL
$78.78 (-0.17%) $0.13

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

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