This weekend, giant technology giant Oracle (ORCL) and the world's largest retailer Walmart (WMT) announced a "provisional approval by the US government" for an agreement with TikTok owner ByteDance (BDNCE), which would prevent TikTok from being banned in the US Here's why Fastly (FSLY) shareholders should welcome that development.
Image source: Geralt via PixaBay
Preliminary approval should prevent TikTok from being banned
Quickly improve customer service online by host these services close to users thanks to data centers around the world. In addition to these Content Delivery Networking Services (CDNs), it also offers edge computing capabilities, enabling dynamic applications to run close to users.
During Fastly's last earnings call, CEO Joshua Bixby revealed that TikTok represented about 12% of the company's revenue in the last six months, with less than half of that in the US
Thus, given the app's phenomenal growth, the threat to ban downloading TikTok apps in the US also represent a threat to Fastly's top-line growth.
But the agreement that was announced this weekend, which still has to be approved, indicates that TikTik will not be banned. According to Oracle's press release:
The president has announced that ByteDance has received preliminary approval for an agreement with the US government to resolve the outstanding issues, which will now include Oracle and Walmart investing together in acquiring 20% of the newly created TikTok Global business. "
The agreement includes the following elements:
- TikTok Global will be an independent US company headquartered in the United States
- TikTok Global will have an Initial Public Offering of less than one year on a US exchange. [19659012AllUSdatawillbemovedtoOracle'sclouddatacenters
A positive development for Fastly
Let's focus on what matters to Fastly.
Obviously, since TikTok would continue to operate in the US, Fastly will probably continue to generate significant revenue from its largest customer.
However, hosting TikTok's US data at a major US cloud provider such as Oracle may pose a threat to Fastly's CDN and edge computing businesses with TikTok in the medium term. to utilize the cloud infrastructure and replace quickly.
But that is unlikely to happen for two reasons.
First, unlike the three major U.S. public clouds (Amazon (AMZN) AWS, Microsoft (MSFT) Azure, and Alphabet (GOOGL) (GOOG) Google Cloud), Oracle does not propose a CDN solution that can compete with Fastly. And developing such capabilities would represent a multi-year effort.
Oracle actually already benefits from Fastly's growth as Fastly uses Oracle's Dyn Traffic Director to find its customers and direct them to the nearest server for better performance.
Second, Oracle and Walmart can only acquire up to 20% of the new device. By owning a minority stake instead of owning the entire company, Oracle will thus not have the opportunity to make operational decisions about TikTok's data processing infrastructure. to displace quickly by offering TikTok some CDN features seem minimal in the medium term.
Beyond these distractions, Fastly shareholders should not pay too much attention to the long-term impact of the TikTok agreement.  Proposals suggest innovative solutions to accelerate Internet performance and security, and management estimates the market at $ 35.4 billion.
Source: Investor presentation Q2 2020
Considering a turnover of 246.3 million dollars in the last 12 months up 45.5% year over year, the company is still exposed to significant growth opportunities. In addition, Fastly last month announced an agreement to acquire cyber security specialist Signal Sciences, which would increase growth.
A single customer will therefore probably not affect the CDN specialist's long-term financial results.
However, Fastly trades at 33 times the last 12 months' income, which corresponds to strong growth expectations while profits have not yet become anything.
So while Oracle & # 39 ;s TikTok deal represents a positive development for Fastly, investors should remain sound as the market is already pricing quite a bit of growth over the next many years.