What happened
Shares of Fastly (FSLY -0.47%) fell 12% in February, according to data provided by S&P Global Market Intelligence. That percentage drop just measures from the start of the month to the end. But the stock actually peaked at $24.98 per share on Feb. 20 before closing the month out at $19.80. That's a more exaggerated 21% drop.
Fastly's fall started just before the market correction began. The company reported fourth-quarter earnings after the market's close on Feb. 20, and it also announced a shakeup in its management team -- unusual for a company in its first year on the stock market. The drop related to this news was then further exacerbated by general market volatility.
Image source: Getty Images.
So what
Fastly's earnings report actually wasn't bad. For 2019 it reported $200 million in revenue -- up 39% from 2018. This beat the revenue guidance it gave in the third quarter, which was itself an upward-revised guidance. For 2020, management is guiding for $255 million to $265 million in revenue. That growth of 28% to 33% is admittedly a tick slower than 2019's growth rate. That slowing growth may have contributed to Fastly's fall, as investors hate this in high-growth stocks.
But what stole the headlines was the change in leadership. Fastly's founder, Artur Bergman, decided to relinquish his role as CEO and has now become Fastly's "chief architect." Joshua Bixby immediately replaced Bergman in the CEO role. Bixby joined Fastly full-time at the end of 2015, and has served as the company's president since 2017. Bergman, for his part, will now turn his attention from running the company to product development and customer relationships -- things he's very familiar with as the company's founder.
Now what
The stock was already falling when fears related to COVID-19 sparked a broad market correction. Fastly, still unprofitable, sold off harder than the average as investors fled companies perceived as risky. But in regards to the coronavirus, Fastly might have more to gain than to lose.
In its earnings call, management did cite the possibility that its supply chain could be disrupted. The company uses internet gateways -- physical locations designed to deliver internet content at high speeds. These physical places are made of physical devices, which need constant upgrades to keep speed ahead of the competition. If Fastly can't source what it needs for these gateways, growth could be hurt.
But with an infrastructure-as-a-service (IaaS) business model, Fastly can prove its value by handling increased internet traffic on its content delivery network (CDN). If health fears mount and people chose to stay home, it stands to reason that increased internet browsing would be the result.
For that reason, I would say COVID-19-related trading isn't material for Fastly investors focused on the long term. How a new CEO leads the company, however, is relevant and worth watching in coming quarters. But for now there's comfort in knowing that former CEO Bergman remains with the company, and that incoming CEO Bixby is a longtime company insider.
