Fastly: Despite Lackluster Preliminary Results, This Analyst Still Says 'Buy'

  • In Business
  • 2020-10-15 23:30:04Z
  • By External Contributor
Fastly: Despite Lackluster Preliminary Results, This Analyst Still Says \
Fastly: Despite Lackluster Preliminary Results, This Analyst Still Says \'Buy\'  

For content delivery and edge computing company Fastly (FSLY), its third quarter was a letdown, to put it lightly. Shares tumbled 30% over the past two trading sessions, after it was revealed that Q3 2020 revenue is expected to come in at $70-71 million, below the previous guidance of $73.5-$75.5 million.

Who's to blame for this miss? TikTok. Weaker-than-expected traffic volume and the subsequent drop in revenue from the video sharing platform, which is FSLY's largest customer, was behind the disappointing showing. Instagram's launch of Reels and political uncertainty could have driven viewing time away from TikTok's social media platform in the quarter.

On top of this, a few other unspecified customers saw lower usage than FSLY previously anticipated.

Weighing in for Raymond James, analyst Robert Majek points out that TikTok traffic stats decelerated quarter-over-quarter but still grew materially year-over-year, which does not "fully provide an explanation for reduced usage versus Fastly's internal guide."

"Our best additional explanation is a compression algorithm change by TikTok to HEVC/H.265 that would have resulted in a 1X reduction of their bitrate consumption and CDN spend; and could provide some reassurance for investors," Majek commented.

So, where does FSLY go from here? Without a doubt, the stock will remain under pressure until the company offers some clarity around these items, in Majek's opinion. Additionally, the analyst thinks FY21 guidance, which will be provided during the October 28 earnings call, could "address the dueling dynamics with tough CDN traffic comps in 1H21 versus the potential upside from the company's expanded security capabilities via the Signal Sciences acquisition and Compute@Edge."

Although Majek acknowledges that this was not the ideal outcome, this is not to say that Fastly has reached the end of the line. Shares are up 514% year-to-date, and the analyst still believes investors should pull the trigger.

"While there are a few outstanding questions in the interim, taking a step back here, we haven't lost any confidence in Fastly's level of performance and product differentiation that should drive sustainable share gains and growth over time," Majek stated.

In line with his optimistic approach, Majek stayed with the bulls, reiterating an Outperform rating. That said, he doesn't set a specific price target. (To watch Majek's track record, click here)

Turning to the rest of the Street, opinions are split almost evenly. With 4 Buys, 4 Holds and 1 Sell assigned in the last three months, the word on the Street is that FSLY is a Moderate Buy. At $88.33, the average price target implies a 1.5% downside. (See FSLY stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a newly launched tool that unites all of TipRanks' equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


More Related News

Good Entry Point for Gilead Sciences (GILD)? Not Just Yet, Says Analyst
Good Entry Point for Gilead Sciences (GILD)? Not Just Yet, Says Analyst

Gilead Sciences (GILD) notched a first last week, when its antiviral coronavirus treatment Veklury (remdesivir) received full FDA approval.The treatment had previously been granted emergency use authorization (EUA), but the complete go ahead from the regulatory body makes it the first treatment to make it across the finish line.However, ultimately, Raymond James analyst Steven Seedhouse does not expect the long-awaited approval to have the impact investors might hope for."The formal FDA approval doesn't change our estimates or outlook for remdesivir, given it has already been branded standard-of-care prior to formal approval," Seedhouse said. "But the label and approval is pretty much a...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


Top News: Business