It was only a year ago when Fastly (NYSE:FSLY) was a FinTwit darling, and now, the edge computing company has dropped by 38% in 2021, and 24% over the past 52-weeks. It seems like just yesterday the stock was peaking at a price of $122.75 per share. Edge computing was once seen as the future of high speed data transfer between the source and the storage, and it may still be. But clearly the industry has fallen somewhat out of favor with growth investors, as Fastly stock has struggled to maintain momentum.
However, the tides may be changing for Fastly stock as the company released strong third quarter results. In particular, the company reported that some of its top customers have returned traffic following Fastly’s outage in Q2. Moreover, the companies revenue jumped to $87 Million for the quarter and its customer base grew by 6.47% Quarter-on-Quarter.
Why has Fastly Stock struggled in 2021?
So what happened with Fastly? Let’s call it a series of unfortunate events. It all seemed to go downhill for the company when its largest partner Tik Tok was forced to abandon the platform due to uncertainties in the ongoing geopolitical tension between the U.S. and China. Tik Tok struck a deal with both Oracle (NYSE:ORCL) and WalMart (NYSE:WMT) to oversee its U.S. operations, but the platform is still wholly owned by ByteDance in China. Unfortunately for Fastly, it lost out on its largest partner which saw the stock fall nearly 30% in a single session when the announcement was made.
Edge Computing at a Discount
The reaction to Fastly’s downfall was swift. Analysts across Wall Street downgraded Fastly’s stock, and significantly lowered its price target. Fastly stock hit a 52-week low of $33.87 earlier this year and although the stock has clawed its way back to the $50.00 mark, it’s clear it needs to string together some strong quarters to win back the faith of investors.
At the minimum Fastly will have to convince investors that it is acquiring more partners and actively working to expand its platform. The company recently was approved for a patent called “load balancing across origins servers”. This development allows the company to respond to requests across multiple servers. Fastly is also rumored to be involved with Apple’s (NASDAQ:AAPL) new iCloud + Private Relay service. Investors are hoping this could be a lucrative revenue stream in a few years.
The Tides change for Fastly in Q3
After reporting better than expected earnings in the third quarter, it seems the tides may be changing for Fastly shareholders. The company reported Earnings Per Share (EPS) of -$0.11 which beat Wallstreet’s estimate of -$0.19. As for revenues, Fastly posted $87 Million which also beat Wallstreet’s forecast of $83 Million. With better than expected earnings, Fastly stock saw a spike in volumes as investors looked to buy Fastly at a discount.
Fastly’s revenue growth was heavily driven by increased engagement from the companies enterprise customer base, which grew by 22 customers in the quarter. The average spend from their Enterprise customers remained flat, at $698,000.
As for Q4 guidance, the company expects revenues to improve further to $90 Million -$93 Million which will close out the calendar year.
Fastly reaffirms $1 Billion revenue target by 2025
If better than expected earnings wasn’t enough, the companies CEO reaffirmed the companies target to reach $1 Billion in revenue by 2025. For comparison, in the 2021 calendar year Fastly expects annual revenues to reach $350 Million. This means the company expects revenues to grow at an annual compound growth rate of 30%.
“As we continue to invest and execute against these opportunities, we are focused on achieving $1 billion in revenue by 2025. We have set clear milestones to drive success, including winning developers, enhancing our security offerings, and driving enterprise customer adoption. Combined with a strong roadmap of new products that we will discuss further in upcoming quarters, we are optimistic about the journey ahead of us.”said Joshua Bixby, CEO of Fastly.
Final thoughts – Fastly Stock Forecast
Despite the companies long bear run over the past 12 months, the stock finally seems to be gaining some momentum. With strong revenue performance and even stronger revenue guidance for Q4, we can see why investors are taking a second look at Fastly stock.
Fastly management will continue to have the arduous task of convincing investors that it series of unfortunate events are behind them. Nevertheless, Fastly’s recent rally on Wallstreet may suggest investors are already convinced.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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