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Why Fastly Stock Plunged Today

By Rich Smith – Aug 9, 2019 at 11:54AM

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It's a sales beat but an earnings miss for the cloud computing company.

What happened

Shares of "broken IPO" Fastly (FSLY 0.75%) are taking another dive this morning after the cloud computing specialist announced significant revenue gains in its fiscal Q2 2019 report last night -- but also, significant losses. As of 10:45 a.m. EDT, the stock is down 23.8%.  

Analysts expected Fastly to post an adjusted loss of about $0.13 per share on sales of $45.1 million. The good news is that sales came in ahead of estimates at $46.2 million. The bad news is that losses were also bigger than expected -- $0.16 per share pro forma, and $0.26 per share as reported under generally accepted accounting principles (GAAP).  

A glowing red arrow trending down

Image source: Getty Images.

So what

Year over year, Fastly's revenue grew 34%, but it's hard to say if that growth translated into better earnings. On the one hand, GAAP losses actually increased from $0.24 per share a year ago to $0.26 per share in this year's Q2. On the other hand, management insists that its "non-GAAP net loss per share" did improve -- from a $0.20 in Q2 2018 to only $0.16 in Q2 2019.

One clear positive is that Fastly's gross margin improved year over year -- up 100 basis points to 55%. But the company's operating margin deteriorated significantly, from negative 16% a year ago to negative 25% today, as operating costs mounted faster than revenue.

Now what

And Fastly provided little assurance that this dynamic will improve in the near future. Declining to give any GAAP guidance, the company predicted that full-year sales will range from $191 million to $195 million (once again ahead of analyst predictions), while adjusted losses will range from $0.51 to $0.59 per share (about $0.01 worse than what the analysts are saying).

As for Q3, the new guidance calls for $47 million to $49 million in sales (ahead of estimates) and $0.12 to $0.15 per share in adjusted losses (Wall Street wants to see a loss of no more than $0.13 per share).

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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