Fastly outlook misses on continued loss of TikTok business

Company is hopeful business lost last quarter at other customers is coming back this quarter.

Shares of content distribution networker Fastly are up slightly in late trading after the company this afternoon indicated its business from Bytedance, the owner of TikTok, continues to be under pressure.

However, management now expects that some traffic that was lost from other customers will largely return to normal levels this quarter.

After warning a-week-and-a-half ago that business would be lower than expected because of one large customer and a few smaller ones not using the service as much, Fastly tonight offered Q3 results that were even lower than analysts' revised expectations. 

Revenue rose 42%, year over year, to $70.6 million, yielding a net loss of 4 cents. That compares to a revised forecast issued on October 14th of $70 to $71 million, and the original outlook for the quarter of $73.5 million to $75.5 million offered back on August 5th. 

Analysts had been modeling $71.35 million and a 1-cent loss per share. 

On the conference call with analysts, CEO Joshua Bixby said the issues with its large customer remain this quarter, without calling out Bytedance or TikTok by name.

Our previously disclosed largest customer, which accounts for 10.8% of our revenue for the nine months ending September 30th, removed a majority of their us and non us traffic from our platform by the end of the quarter. Based on publicly available information. We believe this global reduction was in response to the potential of a prohibition of us companies been able to work with this customer in any fashion. This clearly impacted Q3 and based on the continued turbulence of the situation. We anticipate the traffic reproductive reduction to continue into Q4 as reflected in our guidance. One of our core values is to focus on our customer and we intend to fully support this customer unless and until we are prohibited from doing so we. We are prepared to accept additional traffic from this customer if conditions enable it to return. However, if it becomes clear that we should no longer support this customer we believe the reserve capacity for this customer can be reallocated over the medium to long term, where the traffic mix. It is consistent with our gross margin objectives.

Fastly's outlook for this quarter calls for $80 million to $84 million in revenue, below consensus for $88.6 million. Net loss per share is seen in a range of 8 cents to 12 cents, below the consensus for a 2-cent loss per share. 

Aside from Bytedance/TikTok, Bixby said customer traffic that had been lost last quarter is expected to come back,

Now moving to the customer timing impacts in the latter part of Q3, our forecast for new traffic coming onto our network from a few existing customers did not meet our expectations. Happy to report that a majority of these timing issues were resolved and we have now seen this traffic come on to the network. There have been instances, however were isolated timing issues have persisted due to the fact due to certain factors, including our evolving understanding of both COVID-19 related travel and data restrictions. In South Asia that delayed build outs beyond our expectations and the timing of customer code freezes. We anticipate this traffic to come onto the network and not have a negative impact be on Q4.  

Some have speculated that Fastly might have lost business last quarter from Amazon, among others, as Amazon appears to be developing its own homegrown contend distribution network. 

Fastly stock is up 0.6% at $72.05 in late trading.