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Fastly Stock Is Falling. The Sky Isn't.

By Danny Vena and Jason Hall - Updated Mar 4, 2021 at 10:27AM

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Lumpy growth and conservative guidance are par for the course.

When Fastly (FSLY 2.78%) reported its fourth-quarter results in mid-February, Wall Street didn't get its way and had a tantrum. The stock has since lost 25% of its value, leaving shareholders to wonder if the company's long-term growth story remains intact.

In this clip from Motley Fool Live, recorded on Feb. 24, "The Wrap" host Jason Hall and contributor Danny Vena look at the big picture and give the matter some perspective.

Jason Hall: Is there any news going on with Fastly, guys? Anything? It's still highly recommended in a number of services.

Danny Vena: Well, there's a little bit of something going on, but what you're seeing far exceeds the reason behind it. I think the last time I looked, Fastly was down more than 35%, and it might be more than that now. I didn't check to see what it's down today. But essentially, the reason that Fastly is down is when the company reported their earnings, and they did that back a week or so ago, the company gave guidance that basically was kind of tepid.

If you look at this company that's been growing, in the year-ago quarter, Fastly grew its revenue by somewhere in the neighborhood 40-some-odd percent, 46%, and this year, it only grew 40%, but then there was also a one-time gain that was factored into that from the addition of Signal Sciences, which it acquired. So if you adjust that out, Fastly's revenue grew only 30% year over year, which is down from 44% in the prior-year period. So you've got a little bit of slowing growth there, and then they said that their year-over-year growth in the next quarter was going to be about 31% at the midpoint.

So the market took that as "the sky is falling." That's not necessarily the case. Fastly is a content delivery network (CDN). They are helping companies reach out at the edge and get their content out there, allow their networks, their websites, and their apps to be faster in communicating with customers and people on their websites.

So I don't think the need for this is going to go away, and I also suspect that management was being somewhat conservative in their guidance, which they have done before.

So it's no fun seeing a stock that you own down 35% or 40%, but we've heard this song before. This happened last year. Fastly fell off a cliff when they talked about the fact that TikTok was going to be pulling some of its content off of Fastly's network, and the stock fell like a brick.

Jason Hall: Last year, we saw Fastly stock have three separate occasions where it fell more than 25% within a month.

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