Fastly - Four Concerns

Investment Analysis Clubs Saul’s Investing Discussions
1

Hey Fools,

So Fastly rose to become my top stock. But I have some issues that are bugging me and I very likely will trim my position today.

  1. I thought the Press Release was vague and lacked candor. For example, why couldn’t they just name ByteDance, the owner of TikTok? Why not tell us which other customers are using the service less? How many is a “few” other customers? Compared to Cloudflare, who has elite communication and immediately issues bold, clear, timely press releases, I find this unimpressive. I would have preferred greater clarify, specificity and confidence.

  2. Insider Sales. I rarely care about this. When a stock runs up it makes sense for insiders to cash out as if you can snag 10,000,000 - that is life changing money. Might as well do it, even if you think better days are ahead. And if you own, say, 300,000 shares, selling 20,000 is not that big of a deal. And yes I get that most of these are pre-planned deals. Reed Hastings of Netflix has sold from day one and the stock has gone up exponentially. I get it. That said, Bergman sure seems to be unloading heavily despite big roll-outs coming in 2021. Would ONE big unload per month not suffice? Surely they must get the “optics” of big sales before this pre-announcement are not ideal.

https://finance.yahoo.com/quote/FSLY/insider-transactions/

  1. Cloudflare is innovating at high speeds as Fastly just made a big acquisition. I prefer the innovator to the acquirer. But by all accounts the last purchase was a good one.

  2. I made a list of the CEOs that I’ve followed here and though Bixby is obviously a fantastic success compared to the average bear, he has not been the key man from day one. He has never run a public company before. He was a venture capitalist. And I just don’t feel he possesses the gravitas or pedigree of Prince, Yuan, Lawson, Green, Lutke, McKinnon.

His answers in this interview linked below feel strained. She asks if he has evidence that TikTok is not a secure app. Should be simple “No.” Instead he gives a long ramble that would make a politician proud. It’s borderline cringe-inducing, even though the basic idea of his thoughts are fine. And earlier he refers to their clients as “beacons of hope.” Oy vey.

https://www.msn.com/en-us/news/other/fastly-ceo-joshua-bixby…

I can’t find it now but I watched a presentation he did at a conference where he was dropping f-bombs left and right and although I liked his core message in the speech, about building winning cultures, I just can’t see the other CEOs mentioned above opening up potty mouths. And I say this as a fella with an appalling mouth.

If the tech is as good as our tech experts feel there’s still a lot to like. I’ve just been having my spider senses riled on this. I felt the same about Cloudflare over some things but after a deeper dive all my concerns were allayed.

I feel like the monumental overachievement in top stocks - even ones many abandoned (SHOP, TTD, TWLO) - are driven by the elite of the elite leaders. And I just don’t see that here. But I realize the stock and company have done incredibly well. I’m only saying this based on watching interviews and reading corporate communications.

For me Fastly, for now, goes into the lower conviction bucket.

BroadwayDan

53 Likes
2

The following are not criticism of BroadwayDan, only how I feel about the issues he rises

Why not tell us which other customers are using the service less?

Etiquette. Courtesy to their customers. We, the investors, don’t add revenue, customers do. Don’t antagonize them. Tik Tok is pubic knowledge, the others aren’t.

2. Insider Sales.

Mostly irrelevant.

I prefer the innovator to the acquirer.

How quickly the new CDN architecture from scratch is forgotten!

Bixby is obviously a fantastic success compared to the average bear, he has not been the key man from day one. He has never run a public company before. He was a venture capitalist. And I just don’t feel he possesses the gravitas or pedigree of Prince, Yuan, Lawson, Green, Lutke, McKinnon.

Mostly irrelevant.

Denny Schlesinger

44 Likes
3

Disclosing customers using service less -
If they did, likely those company stocks would tank. Perhaps legal ramifications.
As such, I think there will be lawsuits over this guidance change, just distraction, no material impact in the end.

I suspect the biggest impact to this is TikTok.

Another factor I thought of -
In the US, people travelled a lot this summer. Campgrounds were overflowing, RVs were booked for months, flights started becoming full… especially in the weeks leading up to school opening, i.e: September.
That might translate to reduced traffic on content delivery.

  • F8
2 Likes
4

Only Captain point I find valuable is they have been more innovative than I may have given them credit for. Fair enough. But I’m responding to the exceptional performance by Cloudflare in terms of rolling out new products lately.

As for calling the evaluation of a CEO “mostly irrelevant” I strongly disagree. Bezos, Hastings, Benioff have been critical to their respective company’s success. If Captain is saying my evaluation of Bixby is irrelevant or wrong, that’s fine. If he feels the man deserves more credit, make the case. But to say evaluation of leadership is most irrelevant beggars thought itself.

SHOP and TTD have valuations that are largely fueled by their ultra elite CEOs and their ability to tell the story. This is what Stock Novice calls the “narrative premium.” This is not only relevant it’s arguably the single most important factor in evaluating a company. I admit it’s a fuzzy area but I don’t see Bixby as big league CEO material and he is, as of now, unproven in the role. He’s not the founder. His background is in venture capital, though he’s been part of Fastly for awhile. He may end up being a great leader. I’m just saying I don’t find him impressive during interviews, nor do I think his PR particularly helped in this instance. I find it entirely believable that a better CEO would have laid out this information in a way that didn’t cause such an ugly drop nor invite speculation and sow doubt. We have to demand candor, plain English and conviction from our CEOs. I saw none of that here.

But to each his own! For me, evaluating leaders of TTD, ZM, NET, TWLO and others has been invaluable. It helped me recently up my position in NET and hold when all the world was screaming Zoom was overvalued. And had I listened to my gut here I’d have trimmed prior to this 30% haircut.

BD

18 Likes
5

A contrarian point of view.

The debate over the value of management vs. the market is an interesting one. Warren Buffett said, ‘If you have the greatest management team in the world running an airline, it’s still an airline.’

My personal opinion is you need a competent CEO. But I disagree that the CEO is what makes a Shopify or a Salesforce so successful. It’s the product-market fit they achieved that makes them successful. I believe any competent CEO could run those companies. Hero worship of rockstar CEOs makes the business press compelling to read, but I think their value has been greatly exaggerated. And for very obvious reasons. Boards need to justify the lavish pay packages rockstar CEOs receive.

Besides, there are plenty of examples of bad CEO running great companies and in spite of all their efforts, they didn’t kill them. The Steve Balmer era at Microsoft is one and the John Scully era at Apple is another. Great companies with great products will always thrive.

As for Fastly.

I can’t seem to make up my mind. I sold out for a nice gain a while back only to get back in with a small buy week ago. I am going to hold for now and see what happens. C’est la vie.

4 Likes
6

To GolfCaddy,

Shopify is CEO Toby Lutke’s creation; it’s hugely successful based on his vision and ability to execute that vision (that includes attracting and hiring the right people and creating an excellent working environment). He’s also extremely responsive to his customer base. I don’t worship him. I appreciate his humility and ability to innovate and execute as circumstances change. Ditto for Zoom and Eric Yuan.

Warren Buffett has made many great comments but this one doesn’t seem to apply in this context. Even a great management team of an airline can only do so much given regulatory constraints, etc. Airlines don’t enjoy as much freedom or agility as most of the asset-light companies discussed on this board. Besides, most of the companies here offer services, not products that customers are already familiar with.

In this new world that is being built, visionary and flexible CEOs that can anticipate needs and respond adeptly to changing situations, plus communicate clearly, are far more valuable and mission-critical than CEOs who are merely competent.

As for Fastly, after reading all the comments I sold half my position this afternoon.

3 Likes
7

Only Captain point I find valuable is they have been more innovative than I may have given them credit for. Fair enough.

And not this one?
Why not tell us which other customers are using the service less?
>Etiquette. Courtesy to their customers. We, the investors, don’t add revenue, customers do. Don’t >antagonize them. Tik Tok is pubic knowledge, the others aren’t.

He should have called them out??

And I just don’t feel he possesses the gravitas or pedigree of Prince, Yuan, Lawson, Green, Lutke, McKinnon.

https://www.youtube.com/watch?v=rEo9zv68oZA
https://www.cnbc.com/video/2019/05/17/fastly-ceo-artur-bergm…
https://www.youtube.com/watch?v=lA_x9Nb4bJw
https://www.youtube.com/watch?v=farO15_0NUQ&t=4s

Just curious. Would founder and previous CEO, Artur Bergman, fit in amongst your list above? If the answer is “yes”, do you think maybe he made a mistake by stepping down to become Chief Architect (his true desire – the techie stuff) or a mistake in his thinking that Bixby is CEO material?

No judgement, here…just want to understand where you are coming from is all.

Thanks,
tj

8

It’s easy to praise a CEO and gather evidence he’s the next Lee Iacocca when the stock is rising and it’s also easy to put a totally different spin on the same CEO when the stock is falling. Me? I get a kick out of Jeff Green talking about CTV ad nauseam won’t even break out the actual numbers of sales from that space when they are falling significantly in growth rates. There are better ways to play the CTV space and I call that Roku as I have been saying even when it’s unpopular. But nobody would ever call Roku management a spin master and some have refused to buy because the CEO doesn’t look the part. If that’s the case only more evidence he’s the right person in my eyes.

I agree with captainccs here. I don’t want a CEO that can tell a story I want a CEO that can execute. In the tech space for fast growing companies there are only two companies I am convinced of their ability to grow a company. One is Frank Slootmsn at Snowflake, the other is off limits to this board.

The rest are “able because they are fortunate” and not necessarily “fortunate because they are able” as Philip Fisher would say.

3 Likes
9

To be clear it’s very poor etiquette to start naming customers that are running into trouble. So while some will say that’s “poor leadership” I call it business 101.

11 Likes
10

I kind of wish muji would chime in on this, but I have not seen anything substantial from him on twitter on it, and he seems to have moved on from here.

Thanks to all for the respectful debate. I learn so much seeing how all of you process information and make decisions. I have heard of the legendary quick decision making of Saul, but this is the first time I’ve seen it “live”. It’s a skill I hope to develop. I tend to over-think making big changes like that.

For me, I sold 25% of my shares pre-market because I knew I was going to be busy today and I did not want to risk taking a loss on them. They were my most recent purchase, and I sold them just to not have to deal with the mental battle of having them go negative. I figured I’d be able to think more clearly if that was off the table.

So, I’ve read all the input from everyone, and I’m still undecided. I have concerns, but I also have memories of very strong recommendations from some trusted sources. Recommendations based not so much on revenue for this quarter, but based on the possibilities for the future. Comments about “revolutionary technology” being developed, and creation of a “brain trust” within Fastly that is superior to any competitor. Also a strong recent acquisition that is expected to boost the business going forward. Acquisition completed and new security product being promoted pretty quickly - seems like good execution.

Finally, I can’t get out of my mind that the stock jumped from $100 to $120 in a single day last week. I don’t think we ever really hit on what the cause of that was. I could be wrong, but I’m hoping there was something to that - something we don’t know about yet - something more than just a random Robin Hood call buying attack. Maybe this is blind hope on my part - it’s hard to know based on the data currently available.

So, FSLY is now a 7% position for me. I am leaning toward keeping these shares. Maybe it’s not hypergrowth for a quarter or 2, but if “Compute at Edge” is a real big deal then I kind of want to hang on for that.

Subject to change based on new information.

22 Likes
11

“I don’t want a CEO that can tell a story. I want a CEO who can execute.”

Telling a story is part of execution. Gotta let your company, partners, investors know who you are, what you do, what you plan to do, what your obstacles are and make it all clear, concise, authentic, purposeful, compelling and inspiring enough to lead the troops into battle. And then of course, you have to execute. And when your company runs into trouble you have be detailed, specific and reassuring, not issue vague press releases that instill uncertainty, sow confusion and wipe out billions in market cap.

I will not respond further. I just had to address idea that there’s anything negative about good corporate communication/storytelling. And leadership is part of the narrative though difficult to effectively quantify. More art than science. But it’s not about being a spinmeister, hype, charisma or huckstering. The ideal CEO is actually low key, humble and even borders on invisible. Iacocca specifically cited by Jim Collins in Good to Great as a poor example of leadership. Reed Hastings is far better - laid out his vision clearly, simply - post movies/tv, gain 100s of millions of subs. And he executed flawlessly on his narrative for two decades and counting.

Green is a great CEO because he is passionate about his industry, consistent, measured, works his living behind off to promote his vision for the company and industry as a whole, is building out a global workforce, working hard to make ad-tech a part of university curriculums and makes a powerful case for why TTD will work in China (he brings money in.) And he sold his last ad-tech company to Microsoft. His authenticity as a thought leader in advertising and elite communication skills give his stock a premium valuation. That’s a good thing. I prefer a founder-led company that is run by a guy who built it from the ground up to address a problem he’s passionate about. Yuan, Prince, Kurtz all fit this description. Bixby does not. Again, Bixby may end up being long home run. Time will tell. But he’s a VC who helped Bergman build the company and he’s untested as CEO of a large public tech company. So he deserves greater scrutiny at this time.

7 Likes
12

I’ve thought about Fastly so much today that my brain is beginning to hurt. In my experience when I begin to feel like that it’s best to do nothing and think about something else :slight_smile:

On the topic of management and investing, I remembered a couple of posts from a few months ago which I found really insightful on the topic. It took me a little while to find it again, but think they’re well worth a read:

Addedupon (https://discussion.fool.com/quoti39ve-been-in-tech-my-entire-car…)

I have spent the last 31 years of my life studying leadership. What I know is that companies grow or shrink to the size of their leadership, almost regardless of products and markets. If a leader of a $1 billion company has the vision breadth, depth, executive skill and passion to lead a $100 billion, he will find where the TAM is and bring his company along.

Consider an online bookstore company in the late 1990s with thousands of upstart competitors doing online sales. Some asked, how big can Amazon become by selling books? A few knew he might eventually sell other online retail products. No one saw that Jeff Bezos could expand that company into AWS, kindle, prime, and much more, and become a multi trillion dollar company.

It’s not sufficient to have a wonderful idea or a wonderful product. Google, Microsoft, Amazon, Walmart, Schwab, Netflix, etc would have achieved little without genius at its helm.

Contd…

Siliconmetro (https://discussion.fool.com/i-have-spent-the-last-31-years-of-my…)

Years ago, one of my courses at Harvard Business School focused on venture capitalists and the criteria they used to evaluate startups. After studying case after case, it became apparent that one of the most important factors in gaining access to venture capital was the quality of the management team. The VC’s looked for strong leadership and a seasoned, compatible management team. The company’s Big Product Idea seemed to carry some weight, but it ranked fourth or fifth among the VC’s evaluation criteria.

As a technical person with a freshly minted PhD in Physics, that made no sense to me. I thought that surely the Big Product Idea was the key to success, and brilliant technical people like me were the superstars that made it all happen!

One day after class I approached the professor to try to make sense of it all. He basically explained that when it came to high-tech startups, one good idea does not guarantee success. Even if it’s a great idea, a strong company needs to have a continuous pipeline of great ideas, not just one. He also pointed out that there are plenty of brilliant technical people available, but relatively few brilliant leaders. That’s why a great CEO will eventually grow and move on from one successful venture to another. The VC’s know who they are and they track them carefully. It’s fairly common for a venture firm to recognize a potentially great company that lacks key leadership, and match that company with the right individual(s) to create a solid management team. In fact, that matchmaking may be the most important role that a venture capital firm provides, even more important than providing seed capital.

…However, you can do something much more important. You can watch videos of the management team, listen carefully to their earnings calls, and gauge the team’s passion, vision, clarity, honesty, and overall leadership. That will tell you a great deal about their chances for future success. That’s what the venture capitalists do, and you can learn the same critical evaluation skills.

Contd…

25 Likes
13

Other than listening to their public statements and looking at the growth of the company it is very difficult for an outsider to judge the quality of the management, you are always at a distance. No doubt Bernie Madoff sounded very convincing. Maybe as much as Jeff Bezos. But one was fraud and one was a business genius.

2 Likes
14

If you’re going to announce that you’re about to issue 6m shares and lower guidance, you need to do with a heck of a lot more skill than these guys did. The confusion, negative sentiment and 35% or so stock price drop is due, in large part, to poor corporate communication. And this is a key part of management.

Madoff made promises that anyone with half of a functioning brain would have known were mathematically impossible. Bezos was getting people things they wanted for a great price at high speed.

Yes, of course it’s more intuition, art than science. And one likes to seem some experience - as in Matthew Prince was at helm from day one and for 10 years before NET went public. If Fastly could bungle this communication maybe this lack of skill in communication shows up in other ways - marketing, sales, etc. And yes, this is all speculation and the stock may recover mightily.

4 Likes