The sheer momentum of the cloud-computing sector has taken some traders by surprise in the first half of 2020. Fastly (NYSE:FSLY) has certainly been a fast mover and FSLY stock has shown no signs of slowing down anytime soon.
Yet there’s a wild-card event up ahead, as Fastly will report second-quarter earnings on August 5.
Admittedly, expectations on Wall Street are ambitious for Fastly. With the onset of the novel coronavirus, many businesses moved their computing operations onto the cloud. Fastly was there all along, facilitating the move to “more powerful sites and applications” on the company’s “secure, programmable edge cloud platform.”
With expectations running high, will Fastly deliver what the experts and market participants are demanding?
The quarterly results will be closely watched. An earnings beat could send the FSLY stock bears into hibernation.
A Closer Look at FSLY Stock
In actuality, there probably aren’t a whole lot of bears left, as FSLY stock has shown incredible and relentless momentum. Just take a moment to consider that FSLY’s 52-week low is just $10.63 while its 52-week high is $105.47.
Thus, momentum-focused traders should be delighted by the price action in FSLY stock. However, not everyone is entirely pleased with the stock’s current valuation.
As InvestorPlace contributor Chris Lau points out, “Seven analysts who cover Fastly have a $67.33 price target.” That’s far below the current share price, which is near $100. Lau concludes, “At current valuations, caution is warranted.”
That’s a fair assessment, so I’ll leave value and momentum traders alone to debate whether FSLY stock is due for a pullback. The upcoming earnings report could induce such a pullback, but that would require Fastly to disappoint the market somehow. And that’s not an outcome that I would advise investors to bet on.
Cloud Computing with an Edge
What sets Fastly apart from other cloud-centered companies is that this company offers content-delivery solutions from “the edge.” In other words, while data can still be stored in the cloud, it can be processed at a location closer to the clients and their devices (who are, we might say, on the “edge” of the overall data ecosystem).
As CB Insights explains better than I ever could, edge computing “promises faster processing at lower costs right at the source of the data.” Moreover, “Some of the biggest players in tech… are exploring edge computing, potentially giving rise to the next big computing race.”
Fastly is facilitating this race while empowering its clients to take the pole position. In the domain on content delivery, having an “edge” (pun fully intended) is crucial: “By moving data and applications as close to your end users as possible, you can deliver fast, highly personalized experiences to customers around the world.”
Prepare for Explosive Growth
To be frank, if you’re planning on standing in the way of Fastly’s relentless growth, you might get steamrolled. Attempting to short FSLY stock prior to the quarterly earnings report could prove utterly self-destructive.
Bear in mind that during the three month period ended March 31, Fastly generated $62.9 million in revenues. That’s a 38% year-over-year improvement.
Looking towards the second-quarter results, Fastly’s management forecasts $70 million to $72 million in revenues. This expectation is in line with the analyst consensus estimate of $71.65 million.
At the same time, Wall Street is modeling a second-quarter earnings loss of a penny per share. This seems like a modest projection for a company firmly in hyper-growth mode. This could end up being a launching pad for a major earnings beat, which might take FSLY to fresh highs.
The Bottom Line
Value investors’ concerns are duly noted in regard to FSLY stock. With edge-centered cloud computing being a fast-expanding market, however, there’s the potential for an earnings-event blowout to continue the stock’s powerful momentum.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.