Shares in the technology company were hammered after work Wednesday after the third quarter revenue forecast was lowered and the stock fell more than 25% to around $ 91. Red-hot Fastly rose more than 500% in 2020 at the close of trading on Wednesday.
“The fact is, this is a wild dealer who was due for a big sell-off anyway because … there was too much ignorant money in Fastly,” he said “Bad money” Host said. “Now the stock is clearly at risk, the ignorant money is fleeing like rats on a sinking ship, and I actually like it more.”
“If it keeps falling and you are in your seventies, maybe you are starting a position and preparing to stabilize,” he added.
Its pre-announcement was quick to say that third quarter revenue is expected to be between $ 70.0 million and $ 71.0 million, compared to the previous range of $ 73.5 to $ 75.5 million. The company said it was hurt by its largest customer’s geopolitical uncertainty, which resulted in that customer using the Fastly platform less.
Although Fastly didn’t name its client, CEO Joshua Bixby said in August TikTok was its biggest customer. In recent months, TikTok’s parent company, ByteDance, based in Beijing, has been embroiled in a back-and-forth with the United States after President Donald Trump threatened to ban the popular social media app from the country.
Cramer said if Fastly’s sales struggles were indeed largely due to TikTok’s challenges, it would be good news for investors as an as-yet-unfinished solution appears to be in place.
There could be even more pain for Fastly stock, Cramer warned. It typically takes at least a few days for the reverberations of such forecast cuts to be fully felt, he said. In addition, the share had already risen significantly.
“The stock was very expensive even before the negative announcement,” said Cramer. “It ended up being sold for 32 times the sales forecast for the next year, which is probably one of the top five most expensive stocks I follow.”
However, Cramer said the company’s long-term growth story still appears to be current and appears to be continuing its march toward profitability. Fastly’s San Francisco-based technology enables faster delivery of digital content to consumers. “Thanks to the pandemic, all types of companies have realized that they need to digitize,” said Cramer.
With that in mind, he believes the steep after-close retreat on Wednesday was an overreaction from investors, many of whom may be inexperienced traders who thought Fastly’s shares could only go up. “It could have been a good buying opportunity,” he said.
Fastly will release its full third quarter results after the bell on October 28th.