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Why Fastly Management Is Optimistic About Its Future

By Daniel Sparks – Aug 10, 2021 at 7:45AM

Key Points

  • Despite slowing growth recently, Fastly management remains optimistic about the long term.
  • Management believes the market opportunity for the edge computing specialist is vast.
  • [email protected] and Signal Sciences could both prove to be significant catalysts for the tech company.

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The company is confident it will provide shareholders significant value over the long haul.

Fastly (FSLY 9.77%) stock has been hammered this year. Shares are down about 50% year to date. But the stock has been rebounding sharply recently, suggesting some investors think the stock's beating went too far.

Whatever investors decide about the growth stock, there's one stakeholder that seems exceptionally bullish on the company lately: management. Despite forecasting what will likely be only single-digit year-over-year growth on an organic basis in the second half of 2021, management's optimism suggests this slower growth is a one-off issue thanks primarily to tough comps and other temporary headwinds.

Here's a look at management's confidence about the company's future via some takeaways from Fastly's second-quarter earnings call.

A sketch of a bar chart with a trend line highlighting a growth trend.

Image source: Getty Images.

"We are in the early innings."

When asked by one analyst if Fastly CEO Joshua Bixby remains confident about the company's ability to grow at rapid rates (the 20% range) over the long haul, the CEO responded optimistically, citing technology trends like growing security needs at the edge and 5G internet making the edge more useful for various applications.

Further, Bixby said that the company's 400-odd enterprise customers today pale in comparison to its legacy peers with 100,000 to 120,000 enterprise customers.

"So we look at this and say we are in the early innings," Bixby explained. "This is an early story."

He continued:

The reality of this story for us is that the entire world is changing with this digital transformation that has only been accelerated by the pandemic. And we look at that and we see opportunity.

[email protected] will be a meaningful catalyst next year

Fastly's serverless compute environment for building applications at the edge has been touted for a while now by management as an up-and-coming important product for the company.

Still new to the market, it hasn't been clear when the offering will start driving significant value for the company and shareholders. But management reassured investors during Fastly's earnings call that revenue from the platform should be significant soon. 2022 "is going to be the year where we really see material benefit," said Bixby about [email protected]'s revenue.

Signal Sciences is adding value

When asked how the company's recently acquired security unit Signal Sciences is performing, Bixby said that demand for the security product "is very high."

The CEO continued:

I mean when you look at ... every metric from the pipeline, to deals that are closed, we're seeing continued momentum through that and through the entire quarter and the start of this quarter. So from our perspective, it's a great story. And I think as that gains momentum and ... continues to increase in size, it's going to be incredibly helpful. It's a really important wedge.

While investors should take management's forecasts with a grain of salt, Fastly's reassurance about its market opportunity and catalysts does provide some incremental confidence about the company's long-term prospects.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

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