Shares of Fastly (FSLY) are under pressure on Thursday after the company lowered its revenue guidance for the third quarter, citing reduced use from its largest customer, the video-sharing app TikTok. Following the announcement, both Stifel and Baird downgraded the stock to Neutral-equivalent ratings on concerns about reduced visibility.

REVENUE GUIDANCE CUT: Fastly said on Wednesday that all previously issued third quarter and full-year guidance that it disclosed in the company's second-quarter shareholder letter and related call on August 5 should not be relied upon. "Due to the impacts of the uncertain geopolitical environment, usage of Fastly's platform by its previously disclosed largest customer did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer," the company said. During the latter part of the third quarter, a few customers had lower usage than Fastly had estimated.

"The current global environment has in some ways fueled our business but has also created areas of uncertainty. While our preliminary third-quarter results reflect the challenges of a usage-based model, we believe the fundamentals of Fastly's business remain strong, as does demand for our platform," said Fastly CEO Joshua Bixby. "And while the timing of this required disclosure is atypical, it is part of completing the Signal Sciences transaction, which brings us a stellar team and product portfolio that further differentiates us from our competitors. I look forward to discussing our full third-quarter results and the outlook for our combined businesses later this month."

President Donald Trump has recently ordered a ban on downloads of the TikTok app, which is currently being fought in court, arguing data collected from U.S. orders could be shared with the Chinese government. Under a proposed deal with Oracle (ORCL) and Walmart (WMT), TikTok is said to be seeking a path to become a U.S.-based company.

REDUCED VISIBILITY: Stifel analyst Brad Reback downgraded Fastly to Hold from Buy with a price target of $77, down from $98. The analyst noted that the company offered a "disappointing" third-quarter pre-announcement and withdrew its fiscal 2020 outlook as its largest customer TikTok did not grow as fast as expected and several other customers had lower than expected usage. Reback views the latter as "potentially more concerning" and expects Fastly shares "to meander" in coming quarters.

Meanwhile, Baird analyst William Power also downgraded Fastly to Neutral from Outperform with a price target of $85, down from $105. After Fastly said it expects to miss its third-quarter revenue guidance due to significantly lower revenue from its largest customer, ByteDance, Power said he expects a lack of visibility to be a significant near- to medium-term overhang.

CUSTOMER CONCENTRATION RISK: Credit Suisse analyst Brad Zelnick lowered the firm's price target on Fastly to $100 from $110, while keeping an Outperform rating on the shares. The analyst acknowledged that the preannouncement brings more questions than answers and highlights the inherent risks in customer concentration. Nonetheless, Zelnick continues to view Fastly as well-positioned to not only continue taking share of the traditional CDN market but the more nascent edge computing market as well. He also sees the acquisition of Signal Sciences helping to diversify Fastly's revenue base and accelerate share gains.

DA Davidson analyst Rishi Jaluria also lowered his price target on Fastly to $105 from $115, citing the company's below-consensus third-quarter revenue preannouncement. Jaluria noted, however, that there has been no evidence of dramatic decline in TikTok usage. Fastly's pre-announcement could bode poorly for Akamai (AKAM), Limelight Networks (LLNW), and Cloudflare (NET), he added. Longer term, Jaluria remains positive on Fastly as a " differentiated, developer-focused CDN with upside potential in edge computing and security." He kept a Buy rating on the shares.

Keeping a Neutral rating on the shares, Piper Sandler analyst James Fish also lowered the firm's price target on Fastly to $84 from $88 after the company negatively pre-announced results that missed expectations by 6%. Fish noted that the preannouncement is impacting Akamai, Cloudflare, and other hyper-growth software peers. The analyst, however, would be a buyer of Akamai and Cloudflare on pullbacks "as they are relatively insulated" from Fastly's issues.

PRICE ACTION: In morning trading, shares of Fastly have plunged about 25% to $92.55. Also lower, Akamai has dropped almost 4% to $108.89 and Cloudflare has slid about 10% to $55.50.