Wall Street is a fickle place. The very investors that put a stock on a pedestal can pull it down to terra firma in no time. Just look at Fastly (FSLY).
Until mid-October, the edge computing services provider had been one of 2020’s strongest performers, rising by more than 500%. However, Fastly let investors down when it announced preliminary Q3 results midway through October, lowering its previous estimates for the quarter, after which shares duly plunged.
The violent selloff continued for most of last week, in tandem with the broader market’s decline. Fastly stock is now down by 52% since peaking at an all-time high of $136.50 on October 13.
Investors, then, knew roughly what to expect from Q3’s results.
Despite increasing by 42.6% year-over-year, revenue of $71 million missed the Street’s call by $0.35 million. Additionally, Non-GAAP EPS of -$0.04 came in below the consensus estimate by $0.03.
Fastly’s biggest problem is its heavy reliance on its number one customer – Chinese tech company ByteDance, owner of the wildly successful social app TikTok. After Trump decided to move forward with a TikTok ban, ByteDance moved most of its traffic away from Fastly, thereby removing its main revenue source.
For Raymond James analyst Robert Majek, it all points to a difficult time ahead. Nevertheless, the analyst tells investors to keep the long-term view in mind when considering Fastly as an investment.
“Looking out to 2021, investors should, as a base case, expect little to no TikTok revenue, which creates up to a ~$25M y/y headwind until Fastly replaces the capacity with other traffic,” the analyst said. “Additionally, Fastly may face tough comps when COVID-boosted traffic levels wane, causing us to reduce our price target and 2021 estimates until we get more clarity on how the company will grow through it. Taking a step back to the big picture, our longer-term views remain unchanged, and we remain confident that Fastly’s level of performance and product differentiation in its edge network should drive sustainable share gains and growth over time.”
Therefore, Majek keeps an Outperform (i.e. Buy) rating on the shares. However, as mentioned above, the price target gets a haircut and is trimmed from $100 to $85. Following the stock’s selloff, there’s now upside potential of 30%. (To watch Majek’s track record, click here)
Fastly’s current Street ratings are a mixed bag with 4 Buys and Holds, each, and 3 Sells all coalescing to a Hold consensus rating. Given the $77.11 average price target, there’s potential upside of 18% in the year ahead. (See Fastly stock analysis on TipRanks)
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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.