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Here's Why Fastly Stock Is Soaring Today

The Motley Fool logo The Motley Fool 12/4/2020 Anders Bylund
graffiti on a wall: Here's Why Fastly Stock Is Soaring Today © Provided by The Motley Fool Here's Why Fastly Stock Is Soaring Today

What happened

Shares of content delivery expert Fastly (NYSE: FSLY) traded 17% higher at 12:30 p.m. EST, bringing the stock back to prices not seen since the middle of October. This boost is based on rumors of buyout interest from networking giant Cisco Systems (NASDAQ: CSCO).

So what

Street Insider reported "vague takeover chatter" between Fastly and Cisco this morning, sparking an immediate uptick in Fastly's share prices. It's unclear exactly where the investing news site found this chatter and neither one of the companies has issued any official statements so far. This jump should be seen as an unsubstantiated rumor at best.

a painting in a parking lot painted with graffiti: A person is drawing a mural of a large yellow fish poised to eat a smaller yellow fish. © Getty Images A person is drawing a mural of a large yellow fish poised to eat a smaller yellow fish.

Now what

Fastly is not a cheap stock. Share prices have quadrupled in 2020 despite a firm downtrend in recent months. Uncertainty around one of Fastly's largest customers, the China-based social networking service TikTok, scooped out some of the gains Fastly posted amid explosive interest in remote work and video-streaming services in the spring.

With $30 billion of cash equivalents on its balance sheet, Cisco could certainly afford to pick up Fastly even if it has to pay a large buyout premium on top of the company's $9 billion enterprise value. Fastly's modest sales would largely amount to a rounding error in Cisco's much larger business, but the company would add a whole new type of revenue stream with stellar growth prospects.

As a Fastly investor myself, I would rather see the company continue to deliver high-octane growth as a stand-alone business than settle for a beefy buyout by Cisco (or anybody else, really). That being said, I understand why investors with a shorter attention span are getting excited about the idea of a quick and profitable exit.

Anders Bylund owns shares of Fastly. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

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