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Is Good News About to Drop About Fastly's Biggest Customer?

By Daniel Sparks – Sep 16, 2020 at 5:33AM

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A deal is potentially in the works that could keep Fastly's most important revenue source around.

Shares of edge computing company Fastly (FSLY -0.47%) have been on a bit of a rollercoaster recently. The company's biggest customer, TikTok, has become a major topic of debate since President Donald Trump ordered the popular video social network's parent company, China-based ByteDance, to divest it so that it becomes U.S.-owned.

Several tech giants have been reportedly racing to make a deal that satisfies Trump's concerns about TikTok user data. Now Fastly's biggest customer is reportedly already in the final stages of a deal that would keep TikTok's U.S. operations running.

Three chalk drawings of computers connected to a blue cloud.

Image source: Getty Images.

How TikTok could come to the U.S.

On Monday, Oracle confirmed that it had struck a deal with ByteDance to become a trusted technology partner for the company. Details about how this partnership could bring TikTok's operations to the U.S., however, were still unclear. But on Wednesday, the Financial Times received a scoop that the deal would involve TikTok becoming a U.S.-based company for which Oracle would serve as both a technology partner and a minority shareholder.

The deal could be a win-win for both President Trump and ByteDance: It reportedly would let ByteDance retain a majority stake in TikTok and would bring thousands of jobs to the video app's U.S.-based headquarters.

FT says the Trump administration is reviewing the deal this week.

Nothing is certain yet

Investors shouldn't consider this a done deal until ByteDance and Oracle post press releases with details of the arrangement. Nevertheless, the potential progress is good news for Fastly shareholders.

Fastly CEO Joshua Bixby said in the tech company's second-quarter earnings call that ByteDance was its largest customer.

"Any ban of the TikTok app by the U.S. would create uncertainty around our ability to support this customer," explained Bixby. "While we believe we are in a position to backfill the majority of this traffic in case they are no longer able to operate in the U.S., the loss of this customer's traffic would have an impact on our business."

TikTok accounts for about 12% of Fastly's trailing-6-month revenue. But less than half of that revenue is from TikTok's U.S. operations.

Whether the TikTok deal works out or not, Fastly is confident in the company's growth prospects. Indeed, it's safe to say the company would likely continue growing at an impressive rate even without TikTok. Fastly's second-quarter revenue rose 62% year over year and the company guided for third-quarter revenue to rise 48% to 52% year over year.

Daniel Sparks owns shares of Fastly. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

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