Fastly Still Feeling Effects from June Outage

Shares of Fastly, Inc. (FSLY) declined over 18% in the early trade on August 5, after the cloud computing services provider provided bleak guidance for 2021 and reported disappointing Q2 revenues. Markedly, revenues were impacted by a network outage during the quarter that led to the loss of several important clients.

Fastly CEO Joshua Bixby commented, “We have a couple of customers, one of them being a top 10 customer, that have yet to return their traffic to the platform. We also had several customers delay the launch of certain projects, which delayed the timing of traffic coming onto our platform.”

The company reported Q2 adjusted loss of $0.15 per share, which was slightly better than analysts’ expectations of a loss of $0.17 per share. However, the company reported earnings of $0.02 per share in the prior-year period. (See Fastly stock charts on TipRanks)

Additionally, revenues grew 14% year-over-year to $85 million but fell slightly short of consensus estimates of $85.73 million. The year-over-year increase in revenues reflected the positive impact of its Signal Sciences acquisition and increased adoption of modern edge platform and products.

Impact of the Outage

During the conference call, the company said that the network outage on June 8 was caused by an unknown software bug that was further triggered by a valid customer configuration change.

The company detected the bug within a minute and was successful in returning 95% of the network to normal within 49 minutes. However, the event led to a decline in traffic volumes and consequent issue of credits by the company to some of its customers.

Sharing the details of the impact, Bixby said, “Given the usage-based nature of our business model, this resulted in an impact to our Q2 results, and we expect to see a downstream impact on revenue from the outage in the near-to medium-term as we work with our customers to bring back their traffic to normal levels.”

The company thinks that the traffic will return to the network in 2021 but this may take more time than expected earlier.

Muted Q3 and FY2021 Guidance

Based on the impact of the outage, the company updated its guidance for full-year 2021. The company now forecasts adjusted loss in the range of $0.57 to $0.65 per share, while the consensus estimate is pegged at $0.43 per share. Revenues are forecast to be in the range of $340–350 million, versus the consensus estimate of $382.34 million.

For Q3, adjusted loss is likely to range between $0.18 and $0.21 per share, while the consensus estimate is pegged at a loss of $0.09 per share. Revenues are projected to be in the range of $82-85 million, versus analysts’ expectations of $98.02 million.

Following the disappointing Q2 revenues and bleak guidance, William Blair analyst Jonathan Ho downgraded the stock’s rating from Buy to Hold.

Overall, the stock has a Hold consensus rating based on eight Holds and one Sell. The average Fastly price target of $51.20 implies 39.1% upside potential from current levels.