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We've never seen digital transformation like this: Fastly CEO

Fastly CEO Joshua Bixby joins Yahoo Finance’s Zack Guzman to discuss his outlook on the cloud computing space amid President Trump's scrutiny over the social media app TikTok.

Video Transcript

ZACK GUZMAN: I want to highlight another company here that we've been keeping our eyes on. And that would be Fastly. The stock there today in the red, off more than 2%. The edge computing company there helps customers create quick and seamless experiences. It counts Spotify, Slack, and TikTok among its clientele.

And that last one has been in focus as of late, of course. President Trump has announced he's set a 45-day timeline for China's ByteDance to make a deal to offload its US business to a domestic company here or be shut down. But whether or not that happens obviously is still up in the air.

But since TikTok comprises about 12% of Fastly's revenue, we've seen Fastly shares get hit since reporting that update on its earnings call last week. Shares are down about 30% since then-- off another, as I said, 2% today.

So are investors putting too much stock into the TikTok ban there when assessing the stock? Here to tell us why that might be the case is the CEO of Fastly himself, Joshua Bixby joins us here on "The Ticker."

And Joshua, I'll make this easy on you to start, just by highlighting the other good news that came on your call last week when you topped expectations there. You also said you added more customers in the quarter than ever before as a public company. So how should investors be pairing that with the potential risks tied to TikTok?

JOSHUA BIXBY: Zack, it's a pleasure to be here. You know, I think it's all good news from where I sit, which is that innovators choose Fastly. And I think one thing that's forgotten in this story around TikTok and the focus on it is just how quickly tech can change, right?

I mean, Bill Gates was on a show earlier where he was talking about the fortress, the walls of tech seem impenetrable. Imagine how Facebook would have looked with their billions of users, and then along comes innovative platform. And you know, my 14-year-old kid doesn't want to be on Facebook, because I'm on Facebook. They choose to go somewhere else.

And so I think part of what's lost in this story is actually around digital transformation. We've talked a lot about that in the last few months. But the reality is something like TikTok, but not just TikTok-- Stripe and Spotify and Shopify-- all emulate these characteristics, which is innovation, agility, and doing this at record pace.

And really, we're proud to be, as you talked about with the number of customers, the place where innovators are going and people who want to innovate go in order to deliver the best web experiences out there. So from my perspective it's all good news.

ZACK GUZMAN: Yeah, I mean, I would say that's fair in terms of the user experience that's come along with TikTok. Obviously, you guys are a piece of that.

And when you think about whether or not it's all good news, it's a question investors are trying to grapple with right now. Because you guys raised your guidance for the year, but said what's going to happen with TikTok wasn't necessarily baked in with that. So if we do see that change, at what point would you start to adjust that in terms of giving investors the real look at what could happen there?

JOSHUA BIXBY: Yeah, so we really tried to provide the real look. We took into consideration-- thankfully, we chose to disclose this. It was voluntary. We did. We didn't know that, you know, the president would take the actions he did. We are going to comply with any actions the president, obviously, puts in front of us.

But we have a really strong, robust business. 62% growth year over year, a net retention rate, which is 138%. As you mentioned, the largest number of new customers coming to us during this incredibly challenging pandemic. So we see growth across the board.

And when we looked at our guidance, we understood that this was a risk that we had to take into consideration. So this is something that we've thought about and baked in to how we look at the year.

ZACK GUZMAN: Yeah, I mean, outside of that too, I mean, it's not just you guys. We've seen some pressure in a lot of the internet names lately. You can look at cybersecurity stocks getting hit there.

Software names taking a back seat in some of the rally that we've seen over the fast-- the last few days too, seemingly perhaps because people are betting on the stay at home timeline might actually be shrinking if we see progress on the vaccine front. So how do you guys see demand shift as a function of more and more workers maybe not staying at home as long?

JOSHUA BIXBY: Yeah, it's a great question. We've done a lot of research on this. Obviously, we have this incredible vantage point, almost a crystal ball into the internet, because we see exactly what's happening across the most innovative brands in the world. So what we're seeing is there certainly was a peak in traffic as everyone locked down.

But we're also seeing some pretty seismic shifts that we don't think are short-term. We came out this earnings call and said we think those who are innovating-- we are seeing systematic shifts in the market. So you may have walked into a mall, you know, previously to buy your Christmas presents.

It's our hypothesis-- and certainly, the hypothesis of our largest customers-- that we'll see less of that in Q4 and less of that not just this year, but going out. So you're going to get more food delivered.

Once you try these things-- you know, I did my first food delivery to my house 20 years ago. Didn't do it again until the start of the pandemic. I forgot. It's fantastic. I don't have to go to the store.

So I think some of these habits are going to change permanently. Certainly, looking at my own life, that's certainly the case. So we are not just banking on a short-term change. We think customer behavior is changing towards the innovators' platforms. And I think it's sustained.

ZACK GUZMAN: Well, lastly too, I mean, we talked about how the customers continue to grow. And that might be the case as to why. When we look in your financials too, you guys had the net loss for the second quarter. That came down from what we saw in the same quarter last year. 14 million there versus the net loss of 16 million last year.

You also a strong cash position. More than $450 million there, still from the IPO proceeds here. But the cash burn is a little bit bigger than some of your competitors. So curious just to see the gaps that you might have in the business, acquisitions that could be there in the future to fill those gaps. What's your take on that front?

JOSHUA BIXBY: Yeah, I mean, my take is we're in the early days. We have 300 enterprise customers. There are hundreds of thousands out there. So what we want to do-- and certainly, what our investors want us to do-- is keep investing.

This is the start of a digital transformation the speed of which we haven't seen. Every 20 years or 30 years, we see these moments where we can capture the next architecture of the web or of any market. We're in that moment right now.

And so I think the answer is, we are certainly looking in the market, both for organic and inorganic solutions. We are really focusing right now on security and the computing capabilities that we bring to our customers at the edge.

And that's why the likes of Spotify and Stripe and Slack and The New York Times trust us, because one of our commitments is to keep them modern. And in order to do so, we have to be at the forefront of digital innovation and transformation in our own right. We can't sit back and wait. The internet is just changing too quickly.

ZACK GUZMAN: All right, there you go. The latest. And whether TikTok is on that list of customers or not in a few months, we'll have to have you back to see how things are going. The CEO of Fastly, Joshua Bixby. Appreciate you taking the time.

JOSHUA BIXBY: My pleasure. Happy to come back any time. Thank you.