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Why Fastly Stock Dipped on Tuesday

By Evan Niu, CFA - Mar 2, 2021 at 1:37PM

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The edge cloud computing specialist announces a convertible note offering.

What happened

Shares of Fastly (FSLY 5.78%) dipped as much as 5% today after the company announced a convertible note offering. Fastly is looking to raise an additional $750 million in fresh capital.

So what

The edge cloud technology company, which offers content delivery network (CDN) services, said it has proposed a private placement of $750 million worth of convertible notes that will be due in 2026. The deal is being offered to qualified institutional investors, which will have an option to purchase an additional $112.5 million in notes from Fastly.

Stylized illustration of an engineer standing in a data center

Image source: Getty Images.

The news comes as tech stocks are pulling back after a strong rally yesterday. Additionally, institutional investors that buy convertible notes are typically hedge funds that implement convertible arbitrage strategies, which entail buying the convertible bonds while simultaneously shorting the underlying stock to mitigate directional risk. That tends to create some near-term selling pressure as the investors establish their positions.

Now what

The deal has not yet priced, so key terms such as the interest rate, initial conversion rate, and conversion price have not been finalized. Pricing typically occurs in the evening after the private placement is announced. Fastly says it intends to use the net proceeds from the deal for working capital and other general corporate purposes. Fastly finished the fourth quarter with $216 million in cash on the balance sheet.

"As we continue to see strong growth and increased demand for our edge Quad platform, we aim to capitalize on this opportunity and continue investing in initiatives to drive revenue growth, network utilization, and scale," CFO Adriel Lares commented on the earnings call last month.

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