What happened

Shares of Fastly (NYSE:FSLY) plunged 32.2% in October, according to data provided by S&P Global Market Intelligence.

The cloud computing services provider's stock is still up almost three times since the beginning of the year as the pandemic accelerates the demand for cloud services.

Cloud computing logo among microchips

Image source: Getty Images.

So what

Fastly provided sobering preliminary third-quarter revenue guidance in mid-October, stating that its total revenue would be in the range of $70 to $71 million, compared to its previous guidance of $73.5 to $75.5 million. The key reason for this was lower usage of Fastly's platform from major customer ByteDance (which owns TikTok) as well as lower usage from a few other customers close to quarter-end. This revision was enough to send the stock tumbling by 27% right after the announcement, as investors become increasingly concerned that the company's strong growth may be tapering off.

Revenue eventually came in at $70.6 million, up 42% year over year, while gross profit margin improved to 58.5% from 55.2% a year ago. Though Fastly reported a higher year-over-year operating and net loss for the quarter, the good news was that the business generated free cash flow of around $15.3 million, reversing the negative free cash flow of $15.4 million in the prior year's quarter.

Now what

Despite the surprise downward revision, Fastly's business continues to grow. The company expanded its global network capacity from 58 terabytes per second to 106 terabytes per second over the last year, and total customer count rose from 1,951 in the second quarter to 2,047 in the current quarter.

There are other signs that the business remains on a firm footing, with the trailing-12-month net retention rate at 141% and the company's enterprise customer count rising from 274 in the third quarter last year to 313 this quarter. Fastly also recently announced enhancements to its Compute@Edge solution that will improve scalability and performance for its clients. 

Investors may see the plunge as a chance to load up on Fastly's shares, assuming the company can deliver on its promise of continued growth.

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