Easy come, easy go. That’s the story of this year’s wild gyrations in Fastly shares.
The content-delivery network’s stock spent the first weeks of the year ratcheting higher, rallying 35% from the end of December until the closing of trading on Feb. 9. And since then, the stock has gone into full reversal, losing ground for six straight sessions, cutting the company’s valuation by 32% and trimming its market cap by about $3.8 billion.
Several things have figured into the sudden plunge. Last week, Fastly (ticker: FSLY) shares dropped in sympathy with Limelight Networks (LLNW), a competitor in the CDN market that posted disappointing fourth-quarter results. The Limelight numbers triggered worries about price pressures in the content-delivery market.
Things got worse on Thursday. After the close Wednesday, it was Fastly’s turn to post fourth-quarter results. The report had no obvious blemishes. Revenue was $83 million, up 40% from a year earlier and slightly ahead of the Wall Street analyst consensus at $82 million. On a non-GAAP basis, the company lost nine cents a share, about a penny better than Street estimates.
In an interview with Barron’s on Wednesday, CEO Joshua Bixby said that the results were “really solid,” with security in particular exceeding expectations. And he said that the concerns about CDN pricing that cropped up last week were misplaced.
Analyst reaction to the numbers was lukewarm.
Raymond James analyst Robert Majek repeated his Outperform rating, while lifting his price target to $95 from $85. But Majek notes that investors were a little concerned about the company’s 2021 growth forecast, which calls for revenue of $375 million to $385 million. He estimates that the forecast includes about $30 million in revenue from recently acquired Signal Sciences, an edge-security services company. He says that implies core Fastly growth of about 20%, “which likely dampens near-term enthusiasm for those that value the stock on a next-12-months revenue growth basis.”
Baird analyst William Power, who has a Neutral rating on the stock, says the full-year guidance was a little below his expectations, and notes that there was some confusion about both the contribution from Signal Sciences and the level of contribution from TikTok, which not that long ago was the company’s single largest customer.
Bixby told Barron’s that the company continues to see continuing revenue from TikTok, which was in contrast to a previous understanding that the company had lost all of that business—but the perverse conclusion is that it made the numbers less impressive. If they were still serving TikTok, the thinking goes, the results should have been better.
Citigroup’s Walter Pritchard reiterated his Sell rating on Fastly shares. He notes that the 40% growth rate in the quarter was down from 42% one quarter earlier, and about in line with pre-Covid levels—but adjusted for the Signal Sciences deal, it was closer to 30%. He adds that “new customer adds looked anemic,” with fewer enterprise customer additions than a year ago and “much lower” smaller customer adds. He also models growth, excluding the acquisition, at about 20%, down from 42% in the third quarter and 30% a year ago. He inches up his price target to $49 from $47, still far below the recent stock price.
On Thursday, Fastly shares fell 15.5%, to $80.20. The S&P 500 was down 0.4%.
Write to Eric J. Savitz at [email protected]
