Fastly (NYSE:FSLY), a provider of an edge cloud platform for content delivery with reduced lagging, recently reported its first quarter results for 2024. The company issued an unimpressive outlook for Q2 and lowered its full-year guidance, causing a substantial 32% dip in the stock price. Consequently, investors may be wise to exercise caution and refrain from investing until there is a clear indication of operational improvements.
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FSLY stock has plunged nearly 55% since the start of this year.
Fastly’s Footprint
Fastly provides a real-time content delivery network that includes an edge cloud platform, an edge software development kit (SDK), content delivery and image optimization, video and streaming, cloud security, load balancing, and a managed content delivery network (CDN).
The company offers Infrastructure as a Service (IaaS) and operates an edge cloud platform that helps developers shape, safeguard, and deliver digital experiences at the internet’s edge.
Fastly’s services encompass speeding up and optimizing the delivery of web and application traffic, providing device detection and geolocation, and CDN with diverse features like dynamic site acceleration, instant purge, surrogate keys, reliability features, and modern protocols. The firm also offers a broad range of security solutions.
Fastly’s Recent Results, Outlook
Fastly recently reported financial results for the first quarter of 2024. Total revenue of $133.5 million grew 14% year-over-year and slightly surpassed the consensus estimate of $133.1 million. Revenue growth was driven by Network services, which grew by 12% to $106.0 million, and Security, which saw a 16% increase to $24.6 million.
There was considerable improvement on the profitability front. The GAAP gross margin for the first quarter of 2024 was 54.8%, up from 51.3% in the same period in 2023. Despite these positive indicators, the company reported a GAAP net loss of $43.4 million, slightly less than the $44.7 million net loss in the first quarter of 2023. Non-GAAP EPS of -$0.05 beat consensus expectations by $0.01.
However, investors were disappointed as the company lowered its full-year guidance due to pricing pressures. Management now expects total revenue to be between $555 million and $565 million.
What Is the Price Target for FSLY Stock?
Analysts following Fastly have taken a cautious stance on the stock. For example, BofA analyst Madeline Brooks recently downgraded the shares to Underperform (or Sell) from a Buy rating, with the price target reduced to $8 from $18. The analyst noted the firm’s decelerating growth and limited visibility in the drivers of a second-half rebound in 2024.
Fastly is rated a Hold based on ten analysts’ recommendations and price targets set over the past three months. The average price target for FSLY stock is $10.56, representing a 31.02% upside from current levels.
The stock has been in a downward trend, losing 82% in the past three years. The shares trade at the bottom of their 52-week price range of $7.83-$25.87 and continue to show negative price momentum, trading below their 20-day (9.34) and 50-day (11.20) moving averages. The stock is relatively undervalued with a P/S (price-to-sales) ratio of 2.025x, compared to the Software Application industry average of 6.2x.
Final Analysis on FSLY
Fastly’s revised forward guidance suggests ongoing revenue shrinkage and signals potential hurdles for investors. The stock appears undervalued, but with the ongoing negative price momentum, it could be more of a value trap than a value, suggesting investors should take a cautious approach for now.
