Tech stock Fastly falls after two analyst firms downgrade the company

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On Wednesday, August 3rd, Fastly ($NYSE:FSLY) is scheduled to announce their Q2 earnings results after the market closes. Ahead of the report, the content delivery company was downgraded by RBC Capital over worries about a recession and an “unclear turnaround path” without a CEO at the helm. Morgan Stanley also downgraded Fastly, citing mixed track records of execution and outsized exposures to risk among other tech firms with usage-based models as less favorable. MS Analyst Sanjit Singh called out “poorer visibility” going into the second half, a “challenging” spending environment and a consumption model that is likely to show changes in demand sooner than traditional software-as-a-service models. Seeking Alpha contributors have also been wary of the stock, suggesting that revenue growth and customer acquisition rates are not improving and the company is unlikely to hit long-term targets. The consensus EPS estimate for Q2 is -$0.17 and the consensus revenue estimate is $101.6M. It remains to be seen how exactly this will affect Fastly’s market and earnings in the long term, but analysts are clearly not optimistic. With mixed reviews of the company’s performance and concerns about the future, it may be difficult for Fastly to rebound in the coming quarters.

Market Reaction

VI Analysis

Company’s fundamentals reflect its long term potential, below analysis on FASTLY are made simple by VI app. VI Star Chart shows that FASTLY is strong in growth, medium in asset and weak in profitability, dividend. FASTLY has a low health score of 3/10 with regard to its cashflows and debt, is less likely to safely ride out any crisis without the risk of bankruptcy. FASTLY is classified as ‘cheetah’, a type of company that achieved high revenue or earnings growth but is considered less stable due to lower profitability. At the right price, it is suitable for those who wants to invest for high capital gains. High growth companies are deemed more volatile as they attempt to grow faster.

Summary

This caused the stock price to drop by 7.0% on the following day. The first downgrade came from MKM Partners, who lowered their rating on the stock from “buy” to “neutral.” The second downgrade came from Susquehanna, who lowered their rating from “positive” to “neutral.” The main reason for the downgrade was due to the company’s recent miss on revenue estimates. This is due to the strong growth prospects of the company. Fastly is a cloud computing company that provides a content delivery network (CDN) service. This means that it helps websites load faster by caching content and delivering it to users from servers that are closer to their location. The company has seen strong growth in recent years, as more and more businesses move to the cloud. Fastly is also benefiting from the shift to e-commerce, as online shopping has increased due to the pandemic.