Edge computing company Fastly (NYSE:FSLY) recently announced its fourth-quarter financials with mixed results. Reported Q4 adjusted earnings per share (EPS) came in at $0.01, ahead of the consensus forecast -$0.03, while revenue lagged consensus estimates of $139.81 million, coming in at $137.78 million. However, management’s financial guidance seemed to be the catalyst for the stock sell-off. With a sharp decline of roughly 18% year-to-date, is the current price an appropriate adjustment given the news, or is it overdone? The response from analysts covering the stock points to the latter, which suggests an upside potential.
Tilting Towards Value
San Francisco-based Fastly, Inc. provides a real-time content delivery network (CDN) that offers an edge cloud platform, edge software development kit (SDK), content delivery and image optimization, video, and streaming, cloud security, load balancing, and managed CDN.
The company reported revenue growth of 15% year-over-year, sharing that the total customer count grew by 141 in the fourth quarter, with enterprise customers rising by 31 over the same period. Further, the average enterprise customer spend was up 3% quarter-over-quarter.
It is worth noting that Fastly expects continued gross margin improvement following a 330 basis points expansion to 56.9% in 2023. The company projects 2024 gross margin to increase by about 200 basis points, plus or minus 100 basis points, compared to 2023.
Analysts See Upside in FSLY Stock
As Raymond James analyst Frank Louthan noted the company’s Q4 revenue was just below the Street’s consensus, while EBITDA was well above guidance. Louthan reiterated a Buy rating and raised the price target for FSLY stock to $27 from $25, pointing out that the company is now on track to achieve free cash flow breakeven by year-end.
Likewise, D.A. Davidson’s Rudy Kessinger raised his price target to $24 from $22 while maintaining a Buy rating on Fastly stock. The price change suggests his belief that the stock will overcome the current price decline and eventually reflect the company’s execution of its strategic initiatives. Kessinger expects accelerated growth throughout this year, noting that Fastly reported the strongest new customer acquisitions in three years and a continued improvement in gross margin.
What is the Price Target for FSLY?
FSLY scores a Moderate Buy consensus rating based on eight Hold and three Buy recommendations from Wall Street analysts. The average price target is $21.25, with a high forecast of $28.00 and a low forecast of $18.00. The average price target represents a 45.05% upside from the current levels.
In Summary
Fastly’s disappointing outlook for growth in the near term may have sparked a steep sell-off in its stock, but the response from analysts suggests that the current price may be an overreaction. The company’s fundamentals continue to show reasonable growth and increased customer adoption, which bodes well for its long-term prospects with a diverse range of customers and offerings in the rapidly growing edge computing market.
The recent decline represents a possible buying opportunity, especially if the company continues to deliver on its financial targets and expand its product portfolio.
