Fastly (NASDAQ:FSLY) has a growing niche and excellent prospects, but it’s hard to fight fashion. FSLY stock lost almost a third of its value in the last six months, and the latest “tech wreck” may not be over yet.
When the market’s fashions change, it doesn’t matter what you do. Your stock is going down.
For instance, FSLY stock offered stellar results in its fourth-quarter and full-year report. Revenue of $172 million was 51% ahead of last year.
Half the company’s yearly loss of $96 million, 93 cents per share, came in the fourth quarter as the company staffed up to deal with the growth. Operating cash flow losses of $19 million were far below the previous year’s $31 million, and there is over $63 million in the bank at year-end.
These numbers would have looked stellar a year ago, or even three months ago, but the market wants profit, it wants value.
A Closer Look at FSLY Stock
Fastly’s business is to bring speed to the network edge with software as a service (SaaS). CEO Joshua Bixby emphasizes this is secure bandwidth that lets publishers live stream and deliver western levels of service on a global basis.
Fastly got a ratings upgrade from Oppenheimer analyst Timothy Horan right before the stock’s fall, after “channel checks” indicated record volumes and fast take-up for its “compute@edge” service.
Horan thinks the company should trade at multiples similar to Cloudflare (NYSE:NET), which trades at over 50 times its annual revenue. Fastly’s current market cap of $8.1 billion is 46 times last year’s revenue.
The problem is no one wants growth, especially tech growth, in the current market. There is always an excuse. In this case, it’s that the outlook wasn’t as positive as analysts hoped for. The company expects to lose 9-13 cents/share in the current quarter, which is close to its adjusted loss of 9 cents for the fourth quarter.
So tech buyers like Cathie Wood at ARK Investment have been reportedly “buying the dip,” picking up the stock as it falls. Among the sellers is Bixby himself, who sold 7,000 shares recently at about $81.
Fastly’s market should continue to grow quickly, with or without the pandemic. Content delivery networks like Fastly are going to benefit from a rise in edge computing. Since buying network security company Signal Sciences last year, Fastly can assure that these services are secure.
Fastly is a specialist in serving small groups or remote users. It’s not a broad content delivery network like Akamai (NASDAQ:AKAM), which has been bringing fast video to the network edge for decades. The company also faces new competition from other legacy companies like F5 Networks (NASDAQ:FFIV) and Cisco Systems (NASDAQ:CSCO), which see its niche and want in.
But this may be the best reason to look for gains in FSLY stock down the road. Companies that missed the latest rise in software-driven edge computing could see Fastly as a quick way in, and its lower price as a bargain. There’s a floor developing for Fastly stock near what would be an acquisition price.
The Bottom Line
Fastly stock should be one you watch closely, seeking a bottom you can buy. There’s growth here, and there’s an opportunity for larger players here. Vast new markets are going to develop at the network edge over the next few years as the Machine Internet becomes real.
Right now, most Fastly contracts are for short-term connections on behalf of people. Over time they’re going to become long-term contracts on behalf of devices. Fastly has a vast future ahead. Young growth investors should seek a way into it.
At the time of publication, Dana Blankenhorn owned no shares (directly or indirectly) in any company mentioned in this story.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.