Why Fastly shutdown thousands websites but its stock soaring 11%?


Incident recap

Fastly (ticker: FSLY) made a software update error on the East Coast time of the United States on 6/8/2021, which caused 85% of its customer websites to hang. Although the problem was fixed two hours later, most of the customers’ websites returned to normal. Including UK government portal gov.uk, Financial Times, New York Times (ticker: NYT), Bloomberg, Amazon (ticker: AMZN), Spotify (ticker: SPOT), Twitter (ticker: TWTR), Twitch (ticker: AMZN), Hulu (ticker: DIS), PayPal (ticker: PYPL), Etsy (ticker: ETSY), CNN (ticker: T), Pinterest (ticker: PINS), Reddit and other large websites, suddenly disconnected for about two hours in the morning on the 8th.

According to the estimates of Connective3, a market research firm, the press and publishing industry alone lost $300,000 in Google advertising revenue; the losses of companies implicated in other industries are difficult to estimate, and the U.S. stock futures index at that time also fell for a while.

Fastly is one of top three CDN vendor

The CDN (Contents Delivery Network) function that speeds up the loading efficiency of customer website content and shortens the response time is a function that all large-scale websites must use, that is, it is an essential part of almost all corporate website infrastructures in the world, and it is only for general use. The person doesn’t know it.

At present, there are only three large-scale professional CDN vendors in the world: Akamai (ticker: AKM) with the longest history, rising star Cloudflare (ticker: NET), and Fastly, which has made a big appearance this time. A survey pointed out that if the connection response speed of the website is higher than 2.5 seconds, netizens will directly abandon the website. You can imagine the necessity of CDN.

The picture below is the stock price trend chart on the day and the next day of Fastly incident (Source: Google Finance)

Reasons for abnormal stock price rise

But why did Fastly, a company that has caused such a catastrophe, after the news was revealed, the stock price soared by nearly 11% that day, and the highest rise was more than 18% in two days? I think the reasons are as follows:

  • Fastly’s successful crisis handling: After the incident, the company’s handling of the incident is contrary to the unwritten tradition of the corporate world of reporting good news without reporting worries and turning major events into small ones. The whole process is completely transparent and open; not only the openness is continuously explained to the public, but the root of the problem is also solved immediately within two hours.
  • With the help of the rapid spread of social media, the netizen suddenly discovered that there is a listed company whose influence is so great that it affects the whole body. It has a long list of companies, governments, and publications that are familiar to global netizens, and heavyweight customers such as industry and media.
  • Technology stocks rose sharply last year, and the company’s valuation was not far from its valuation a year ago, triggering investors to rush in.
credit: wikimedia

Highlight the fragility of modern software cloudification

This incident highlights the Internet vulnerability caused by the modern software industry, cloudification of the Internet, and different job of labor in the modern software industry, network cloudification, and detailed division of labor in the book “The Rules of Super Growth Stocks Investing”, section 3-7, an inconspicuous small company’s inconspicuous small problem can trigger panic (the same drama will actually be staged every now and then), which is a high level of risk that modern people and all companies must face and bear. Sure enough, a few days later, on 6/17/2021, it was replaced by Akamai software update, causing the websites of several large banks and airlines around the world to crash.

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