More on Fastly and Limelight

This whole Fastly situation is so interesting. I just don’t see what the market sees in this company (other than growth of course).

Last night Fastly reported earnings and they weren’t all that great from what I can see. Lots of interesting tidbits but the first is on Tiktok.

So they lost most of the Tiktok business in Q3 and it continues to leak in Q4. They aren’t even guiding for any Tiktok revenue in December.

If you remember, the basic question that started me down this whole wormhole was – if Fastly is so great and Limelight Networks so shitty, then why is Tiktok leaving Fastly and looking at signing a deal with Limelight?

Well Fastly blames the Tiktok loss on regulations (ie Trump), which kinda makes sense. But I don’t quite get why Tiktok would be ramping down Fastly when the US ban is on hold and we don’t even know if it will happen at all?

I thought this was an interesting exchange from the call. Fastly was asked a very simple question: Is Tiktok moving traffic as a temporary measure?

The right and easy answer to this question is something like: Yeah we hope so but we will have to see how the regulatory side plays out.

Instead, this was Fastly’s answer:

Yes, Robert, thank you for the question. I think this is a very dynamic situation. I come back to that. I think if you think about the time line over the last few months since we last spoke, a lot has changed. A lot that we thought was going to happen may not happen. So I think — I’m not sure we are in certainly no position to have any proprietary insight into any of this situation. I think what we would say, in general, is it’s very dynamic. We don’t have clarity on the process, and we expect the situation to remain unresolved for a period of time. And so I don’t have any more insight in terms of what that looks like.

 I think from the publicly available information that we see, it is very clear that it is important for any customer in this position to be able to continue to serve their customers if and when certain vendors are prohibited.

I think its a legitimate question to ask why Fastly didn’t just say we hope so and instead answered with the above gobbledygook.

Second point. Fastly made a fairly big acquisition in the quarter with Signal Science. It was like $775mm, so not inconsequential. SS is going to add $8mm of revenue this quarter. That is actually a sizable chunk of Fastly’s yoy growth in the quarter. It means without the acquisition they’d only be growing 25% yoy.

Did you know that Fastly only has 40 US patents (they do have another 47 pending)? About the same as Limelight.

I’m thinking more and more that the differences between the Limelight business and the Fastly business has a lot of smoke and mirrors to it (as well as some legitimate substance). Yes, Fastly is developer focused (as they tell us ad nauseam in their 10-K which btw reads like a marketing letter) and yes they have better technology and yes because of that they can charge higher margins (which are charged to mostly smaller players btw). But for the big traffic players (like Amazon, which is Limelight’s biggest customer by far, and Netflix, which Limelight lost the business of a while ago when they started their own CDN) what matters is price because at the end of the day these guys are just pipelines for data.

Meanwhile Limelight is getting into the edge computing side that Fastly excels at and is growing that business so it will be interesting to see how that piece plays out.

So no, Limelight is not worth a huge sales multiple and right now it doesn’t have that. I just think its fallen too far.

Fastly, on the other hand, does not seem to be worth 25x sales. Take a look at the chart. This was a $20 stock in 2019 and for the first few months of 2020. It didn’t do much of anything.

You have to think that this year, with everyone online, their pricing model (which is volume based) should be booming, yet their growth is kinda meh and the stock price, even after this collapse, has still tripled.

This isn’t a Limelight is better than Fastly argument. It is more a compare these two companies, which have similarities and differences, and ask if one deserves to be worth 12x more than the other?

I just don’t see it.