Friday File: A Light Trim for the Flyboys?

Shifting the portfolio a hair to move speculative "cloud" profits into more stable names... plus thoughts on gold, Berkshire and more

By Travis Johnson, Stock Gumshoe, July 10, 2020


Another wild week in the life of growth stock investors — in just the course of a week Shopify, Fastly, Amazon, Docusign, Roku, NVIDIA, Teladoc and Wrap Technologies each managed to rise in value by more than 10%, some by much more, and that’s in a week that saw essentially no fundamental news about any of these firms that should really change our thinking about them… it’s just growth and momentum run wild, and what fun that can be.

The surge by Fastly shares, in particular, has been ludicrous this year, the stock is up more than 300% year to date, and up more than 600% from the March lows, as the strength of its CDN and edge computing network during the “work from home” shutdown captured the fascination of investors, particularly as Fastly is used by high-profile companies like Shopify and Amazon. That’s all great, and I think it’s a very well-managed company with some compelling prospects in the long run, but this valuation is baking in a LOT of optimism about Fastly’s customer growth and revenue growth over the next few years. Maybe that optimism will prove warranted, but it’s hard to believe there won’t be some bad days ahead as well — this is, after all, a company with pretty high operating expenses as they ramp up capacity and try to bring on new large customers, and with strong competitors across the CDN landscape.

Fastly is likely to be at break-even by some point next year, on an adjusted basis (meaning, they’re not quite profitable on a GAAP basis… but if you ignore stock option compensation, they might be just barely profitable, so they’re not actually consuming cash). Their goal was to show a profit by their fifth year after going public, and it seems likely that the COVID-19 boost to their business will move that up a bit, maybe to year three or four (which would be 2021 or 2022), but to a large degree Fastly management is still guessing — they don’t really know what the economy or their marketplace will look like in 2021 any better than you or I do. I expect that the revenue estimates for Q2 and Q3 are probably too low, since Fastly was being a little cautious in their guidance and predicting a fuller “reopening” of the real economy by now, but the stock has ...

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