Fastly's TikTok Dependence Becoming 'Bigger Issue,' Analyst Says In Downgrade

TikTok represents 12% of Fastly's revenue, and a Piper Sandler analyst said this is a major concern going forward for the cloud computing stock. 

The Fastly Analyst: James Fish downgraded Fastly, Inc. FSLY from Neutral to Underweight and lowered the price target from $84 to $65.

Related Link: Fastly Plummets 30% On Lowered Guidance, Poor TikTok Results

The Fastly Takeaways: The major risks for Fastly are competition, customer concentration, internet growth, valuation and governance, Fish said in a downgrade note.

“Our research affirms TikTok will become a bigger issue for Fastly over the next year than the market believes, as it is rapidly building its own [content delivery network],” the analyst said.

Job postings and employee conversations point to TikTok moving its traffic to other competitors in addition to creating its own content delivery network, he said. 

TikTok moving traffic and working on a CDN could hurt estimates for Fastly, as TikTok estimates are still baked in, Fish said. 

Fastly faces a “major risk” with customer concentration, as the top 10 customers account for around 33% of revenue, the analyst said. 

"Amazon likely shifted some of its website traffic back to CloudFront and/or to Akami ahead of Prime Day and the holiday season,” he said.  

“The company’s fundamentals and risks are not appropriately reflected in the stock at these levels and we prefer exposure elsewhere.”

FSLY Price Action: Shares of Fastly were down 4.44% at $75.68 at last check Friday.

Shares are down over 35% since the company pre-reported third-quarter earnings last week. 

Benzinga’s Take: The downgrade from Piper Sandler comes after other analysts kept their ratings unchanged, but had many questions on what to expect from Fastly going forward.

Cathie Wood added Fastly shares to Ark Next Generation Internet ETF ARKW after shares tumbled 30%, which could suggest she thinks the sharp fall was unwarranted. 

Fastly will announced third-quarter results Oct. 28.