Content delivery expert Fastly (FSLY 5.54%) suffered a rare global outage on the morning of Tuesday, June 8. A bad "service configuration" caused disruptions across the company's global network of content delivery endpoints, triggering outages for many of Fastly's clients -- and their clients, in turn.
One might expect the company's stock to suffer on a day like this but that's not quite what happened. Fastly's shares fell as much as 7% in Tuesday's pre-market trading but they recovered quickly. The stock closed Tuesday's regular trading session 10.9% higher. Some would argue that Fastly's stock rose as a direct result of the early morning outage, not in spite of it.
Let's take a look at the good, the bad, and the ugly details of Fastly's brief service interruption.
The good: Fastly fixed the issue in a hurry
Fastly was aware of the service issue less than ten minutes after it began. The company found a fix half an hour later and the internet started to feel like itself again just 46 minutes after the first error report.
This was no breach of cybersecurity, but a mishandled configuration change of some sort. Large IT companies perform small service changes all the time, often in broad daylight and typically without their customers ever knowing. That's just part and parcel of keeping a digital infrastructure secure, updated, and at peak performance over time. Human error is bound to trip things up from time to time, as it did to Fastly on Tuesday. When that happens, what matters the most is correcting the error and making sure that this particular mistake won't happen again.
We know that Fastly nailed the early response. That's valuable.
The bad: Refunds and customer trust
Fastly's contracts come with hard and fast service level agreements (SLA). Customers with enterprise-level support deals are entitled to a 1% refund in any month where Fastly's services were down for less than 272 seconds. Any outage above 43.8 minutes triggers a 5% refund, and downtime of 7.2 hours per month works out to a 10% invoice credit. If these figures sound arbitrary, we're talking about monthly availability levels of at least 99.99%, 99.9%, and 99%, respectively. Even longer blackouts can result in refunds of up to 50%.
Tuesday's outage straddles the line between 5% and 10% discounts. The company's internal measurements may differ from what looked like a 46-minute blackout from the public point of view. Either way, the event will make a small dent in Fastly's second-quarter revenues and profits.
Moreover, the company could lose contracts over this sort of thing. Piper Sandler analyst James Fish argues that some of Fastly's largest clients might put the company in their "penalty box" and implement other content delivery solutions. Fish sees Fastly as a high-priced player in the content delivery space. He prefers to invest in Fastly's rivals, particularly the inveterate market leader Akamai Technologies (AKAM 2.42%).
The ugly: One small company's massive online impact
Fastly's configuration misstep knocked out thousands of products, services, and websites on Tuesday morning. Some of the failures didn't involve a direct Fastly contract. Name a leading cloud computing platform and you'll probably find that it depends on Fastly's services to some extent. Thus, the service interruption disrupted the internet infrastructure on a much larger scale than just Fastly's own clients.
As decentralized as the cloud-based computing world is, many of the required tools and services are deeply interconnected and depend on each other. Take out one crucial bit of the puzzle and many other parts of the global machinery will grind to a standstill. Don't get me wrong -- cloud computing is a powerful idea whose time has come, but it does have some drawbacks. Fastly just illustrated one of them in vivid color.
Did Fastly deserve to soar?
Fastly's investors seem to have embraced the idea that the company got a net positive outcome from Tuesday's outage. The quick response could inspire an influx of new clients and a lot of people probably heard Fastly's name for the first time this week
That idea sounds nice to Fastly shareholders like yours truly but it's also a bit of a stretch. I expect the bad bits to balance out the good. Maybe the chickens come home to roost in August when the second-quarter report shows exactly how the customer sign-ups and refunded revenues match up.
I still think that Fastly is a solid buy at its current share prices, 36% below last October's all-time highs. Tuesday's blackout didn't change the company's long-term growth prospects very much.