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Why Fastly Stock Plunged Today

By Jeremy Bowman - May 6, 2021 at 2:46PM

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A combination of weak guidance and a surprise CFO exit sank the stock.

What happened

Shares of Fastly (FSLY -0.16%) were tumbling today as the edge-computing specialist came up slightly short of estimates in its first-quarter earnings report, and indicated that revenue growth would be flat on a sequential basis in the second quarter. News that the company's CFO would be leaving also seemed to spook investors.

As of 1:05 p.m. EDT on Thursday, the stock was down 25.6%.

The Fastly logo

Image source: Fastly.

So what

Fastly's revenue grew 35% in the quarter to $84.9 million, which was slightly short of estimates at $85.1 million, and includes a benefit from the Signal Sciences acquisition. Total customer count rose from 2,084 in the fourth quarter to 2,207, while enterprise customers, which generate more than $100,000 in revenue annually, ticked up from 324 to 336.

What also concerned investors was that Fastly's net retention rate, a measure of revenue that excludes the addition of new customers, was 107%, down from 115% in the fourth quarter, indicating that revenue from its customer base from the prior year rose just 7%. Fastly generates revenue on a usage basis, so that slowdown may just be a reflection of lower usage of its platform as the global economy reopens.

On the bottom line, the company's adjusted loss per share widened from $0.06 to $0.12 as it continues to invest in the business, but that missed estimates by a penny. 

CEO Joshua Bixby remained optimistic, saying: "We are observing that many of the trends that emerged last year appear to have become permanent, even as the world begins to reopen. Fastly is uniquely positioned to serve companies as they adjust to this new reality, by seamlessly combining delivery, edge computing, and security."

Separately, CFO Adriel Lares said he would step down as CFO, but will stay on until the company finds a successor.

Now what

Fastly's second-quarter guidance seemed to be the biggest weak spot in the report, as the company called for revenue of just $84 million to $87 million, below analyst estimates at $91.7 million. The midpoint of that range represents just 14.4% growth, or just low single digits on an organic basis, factoring out the Signal Sciences acquisition. Management noted that the second quarter would be the most difficult comparison and was more bullish on the second half of the year, as it will also roll over the loss of business from TikTok, which was its biggest customer. But bottom-line guidance for the second quarter was also weaker than expected.

With today's plunge, Fastly is down about two-thirds from its all-time high last year. That's a difficult dive to stomach, but there was little in the report to change the growth stock's long-term potential.

Jeremy Bowman owns shares of Fastly. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

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