Fastly Plummets After Tension Over ByteDance Curbs Sales

(Bloomberg) — Fastly Inc. shares plunged as much as 31% Thursday morning after saying that Chinese internet giant ByteDance Ltd., its No. 1 customer, spent less than predicted in the third quarter on cloud computing services as a result of rising U.S.-China trade tension.

Shares of other cloud providers, including Akamai Technologies Inc., Datadog Inc. and Cloudflare Inc., also fell.

Fastly, a cloud-platform provider said revenue for the period will be in the range of $70 million to $71 million, compared with its previous guidance of at least $73.5 million. Analysts were estimating sales of at least $74.2 million.

“Due to the impacts of the uncertain geopolitical environment, usage of Fastly’s platform by its previously disclosed largest customer did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer,” Fastly said in a statement.

The stock declined the most since becoming a public company last May. The shares were trading at $86.57 at 9:42 a.m. in New York.

The San Francisco-based company is referring to ByteDance, owner of the video-sharing app TikTok, which this year became the center of a standoff between the U.S. and Chinese governments. The Trump administration has threatened to ban TikTok in the U.S., forcing ByteDance to seek a buyer. While Oracle Corp. and Walmart Inc. have agreed to take a stake in a reorganized TikTok, ByteDance is still working out the details with U.S. regulators.

Wednesday’s announcement was not the first time that Fastly has been burned by its dependence on ByteDance. In August, the company’s shares fell after Chief Executive Officer Joshua Bixby told analysts ByteDance accounted for about 12% of Fastly’s revenue over the previous 6 months. Less than 50% of that revenue was from the U.S.

Fastly has been among the biggest pandemic winners in the stock market this year, with its shares gaining more than 500% as a result of increased internet traffic due to stay-at-home measures.

Content delivery networks use a tech distribution platform to push speedy internet content in front of consumers whether they’re buying cases of beer on Shopify, or loading videos on TikTok.

Growth hungry investors have been bidding up software stocks this year. Fastly’s rapid share advance pushed its price-to-sales ratio above 50 this week, more than twice what it was just four months ago.

“The current global environment has in some ways fueled our business, but has also created areas of uncertainty,” Bixby said in its statement. “While our preliminary third-quarter results reflect the challenges of a usage-based model, we believe the fundamentals of Fastly’s business remain strong, as does demand for our platform.”