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Saturday, June 10, 2023

Fastly: Too Much Uncertainty Results in a Downgrade

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Rewind to a year ago and Fastly (FSLY) stock was a high-flying post-covid slump winner. However, times change fast – no pun intended – on Wall Street. And now the edge computing specialist looks in dire trouble following Q2’s results.

Fastly’s latest quarterly numbers underwhelmed while the company also provided a less than reassuring 2H guide, materially slashing its 2H forecast, due to a slowdown in the onboarding of some new customer traffic.

But most of all, the quarter was marred by an undiscovered software bug that emerged on June 8 and caused a global outage to the network, which resulted in the issuance of credits, the temporary departure of a top 10 customer, and slower ramp-up of existing traffic, while the company frantically attempted to convince customers the network was still fit for purpose. As the company labors to bring traffic back on board, the outage’s effect is expected to continue further into the year.

“Given the uncertainty and unpredictability in the business,” says William Blair’s Jonathan Ho, “We believe the stock is likely to remain range-bound over the medium term as management has a lot of work to do to rebuild credibility.”

Range-bound that is, after already dropping by 53% on a year-to-date basis. However, it is worth zooming out a bit here, as despite recent woes, the stock is still up by 95% since the start of 2020.

While Ho doesn’t anticipate the recent hiring of a new CRO and CFO to have an immediate impact on the business, they are steps in the right direction, nonetheless. And Ho sees other positives, but they are currently outweighed by other concerns.

“We continue to believe Fastly has built an impressive edge platform, which should help contribute to growth in 2022 and beyond,” the analyst wrapped up, “But execution and forecasting accuracy have been challenging due to the inherent volatility in the business model and execution related to network resiliency.”

Therefore, Ho reduced his rating from Outperform (i.e. Buy) to Market Perform (i.e. Hold) without suggesting a price target. (To watch Ho’s track record, click here)

Almost all of Ho’s colleagues are on the same page; FSLY’s Hold consensus rating is based on 7 Holds and 1 Sell. In fact, the analysts think the share price is still too high; according to the $36 average target, the stock has another 14.5% of downside until it reaches its fair value. (See Fastly stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The post Fastly: Too Much Uncertainty Results in a Downgrade appeared first on TipRanks Financial Blog.

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