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Why Fastly Stock Flopped Today

By Jeremy Bowman - Feb 18, 2021 at 12:27PM

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Shares of the content delivery network fell on disappointing guidance in its fourth-quarter earnings report.

What happened

Shares of Fastly (FSLY 5.78%), the cloud-based edge computing specialist, were sliding today after the company offered disappointing guidance in its fourth-quarter earnings report.

As of 10:55 a.m. EST on Thursday, the stock was down 12.4%.

The Fastly logo

Image source: Fastly.

So what

Revenue rose 40% in the quarter, reaching $82.6 million, which was slightly better than estimates at $82 million.  

The quarter marked the first full period since Fastly's acquisition of Signal Sciences, a web application security company, which added a bump to its revenue growth. The company also reported a net retention rate of 115% in the period, meaning revenue from existing customers increased 15%, including churn. Customer growth in the quarter was modest as the content delivery network added 37 net new customers, bringing the total up to 2,084, while its enterprise customer base (the highest-spending category) rose from 313 to 324. 

Further down the income statement, gross margin expanded from 56.7% to 59.2%, reflecting additional scale, the Signal Sciences acquisition, and seasonal usage. And on the bottom line, the company reported an adjusted loss per share of $0.09, a penny better than estimates and its result a year ago.

CEO Joshua Bixby said: "We had a strong finish to 2020, delivering total full-year revenue of $291 million, up 45% year-over-year. As we continue to execute on our vision of providing a complete edge cloud solution, we look forward to continuing to empower developers and builders as the digital transformation continues to accelerate."

Now what

While results for the fourth quarter were basically in line with expectations, the market seemed disappointed with the company's guidance in 2021. For the current quarter, it expects revenue of $83 million to $86 million, or 32% to 36% growth, in line with the analyst consensus at $84.6 million. On the bottom line, it sees an adjusted per-share loss of $0.09 to $0.13, worse than the analyst target at $0.09.

For the full year, it projects revenue of $375 million to $385 million, up 29% to 32% from 2020, and an adjusted per-share loss of $0.35 to $0.44. While the top-line forecast was within the analyst consensus, the full-year loss was much worse than the average estimate at $0.21.

If that guidance is accurate, it shows Fastly's growth is costing more than expected and that its margins are getting worse. While that isn't a reason for long-term investors to lose faith, it's understandable that the cloud stock is down by a double-digit percentage today.


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