Concerns that the U.S. government will ban the Chinese social media app TikTok is taking its toll on Fastly (NYSE:FSLY) stock, with the company’s shares down nearly 33% over the past month.

Does this mean the dramatic ride in Fastly is coming to an end? Not at all. And despite President Donald Trump’s administration posing threats as part of its trade war with Beijing, FSLY stock shares offer a rare opportunity right now.

After all, it’s not every day you see a stock that’s up more than 300% on a year-to-date basis and is still trading at a discount. But, that’s where we are with Fastly right now.

FSLY Stock at a Glance

First, let’s look at that dramatic rise. Fastly is a cloud computing service provider based in San Francisco that helps people view digital content faster. It also provides video delivery, security and edge computing services.

Fastly has acquired a healthy group of core customers that have flourished in the stay-at-home culture brought about by the novel coronavirus.

People are turning to online services for commerce, entertainment and to work — and all of that helps companies like Fastly.

Moreover, Fastly started the year at around $20 per share, but it, too, is benefiting from the Covid-19 culture. Second-quarter earnings included a 62% increase in revenue to $75 million.

The company’s total customer count also increased from 1,837 to 1,951 in just one quarter, the biggest increase since the company’s 2019 IPO.

CEO Joshua Bixby said it’s becoming clear that the Covid-19 pandemic is causing long-lasting change to how companies operate, and Fastly is meeting that challenge:

“Looking ahead, we believe Fastly will continue to be the modern platform of choice for innovative companies that are prioritizing their digital
transformations to set themselves up for long-term sustainability and success. Developers now more than ever need to build differentiation at the edge and rapidly adopt new architectures. For this reason, we will keep investing in our network and offerings — Compute@Edge and security — to best support their evolving needs.”

For the third quarter, Fastly is projecting revenue between $73.5 million and $75.5 million, with operating income that will roughly break even. The company is also forecasting a range anywhere from a $1 million loss to a $1 million profit.

For the full year, Fastly raised its guidance to a revenue range between $290 million to $300 million, from a range of $280 million to $290 million. The full-year operating loss is expected between $12 million and $2 million, better than previous full-year guidance of $20 million to $10 million in losses.

The TikTok Problem

While Fastly is increasing its business portfolio, it still gets a huge portion of its revenue from TikTok, the social media app from China that has become hugely popular as of late.

TikTok lets users create and share 15-second videos, similar to the popular Vine video-sharing app that shut down last year.

TikTok acquired Musical.ly in 2017 and merged the apps’ user bases last year and has been growing ever since.

Nonetheless, President Trump has promised to ban TikTok — saying that the company could share user data with the Chinese government. Although others, including this Forbes writer, are speculating that there’s an underlying reason for Trump’s ire.

Remember, TikTok users were credited with trolling Trump by signing up for his June rally in Tulsa, Oklahoma. In turn, this prompted Trump and campaign officials to brag that they had more than 1 million ticket requests. As it turned out, less than 6,200 showed up and there were thousands of empty seats.

Whatever the reason, banning TikTok would be bad for FSLY stock. In turn, Bixby has publicly acknowledged that such a ban would be detrimental to the company and its revenue projections.

The TikTok Solution

Overall, the best solution would be for TikTok to sell its U.S. operations. Why? Because it would eliminate the threat for Trump to ban the company. And that’s what will likely happen.

In fact, TikTok is working on a deal that would reportedly include the sale of its operations in the U.S., Canada, Australia and New Zealand. There are several top contenders.

It’s unclear at this point if the deal would include TikTok’s algorithm, which would be a major piece of the deal that could be valued between $20 billion and $30 billion. China recently imposed new restrictions that would allow Beijing to sign off on any such deal.

TikTok’s parent company ByteDance, has until Nov. 12 to sell or spin off its U.S. business, according to an executive order signed by Trump.

The Bottom Line

Even when you consider national security issues — or the president’s ego — there’s too much money at play here for be to seriously believe that TikTok will be banned in the U.S. I’m much more optimistic that a deal to one of those companies will move forward before Election Day.

When that happens, Fastly stock will resume its upward trajectory. Investors considering a stake in FSLY stock are advised to move before that deal is signed.

FSLY stock is an “A” ranking in my Portfolio Grader right now.

— Louis Navellier

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Source: Investor Place