What happened
Shares of Fastly (FSLY 4.43%) slumped a whopping 35.1% in February, according to data from S&P Global Market Intelligence. The global edge-computing provider posted strong revenue growth but had disappointing guidance in its latest earnings report, causing investors to sell off the stock following the news.
Here's what caused Fastly stock to fall so much last month.
Image source: Getty Images.
So what
On Feb. 16, Fastly reported its fourth-quarter and full-year 2021 earnings results. Revenue grew 13% year over year in the fourth quarter to $97.7 million, beating analyst expectations of $92.5 million. The adjusted loss per share was $0.10, better than the consensus analyst prediction of a loss per share of $0.16. Initially reading the report, investors were likely excited about these results.
But further down, Fastly put out some disappointing guidance for 2022. This year, management is expecting revenue of $400 million to $410 million. This is significantly lower than the consensus analyst expectation of $417 million in 2022 revenue and is a big reason the stock tanked over 20% in the days following.
If the company can hit the high end of this guidance, revenue will grow around 16% in 2022. This wouldn't be a terrible result, but investors have previously expected much faster growth, making the guidance very disappointing for them.
On top of this, high-growth and unprofitable stocks have been taken to the woodshed so far in 2022, with the Nasdaq 100 Index down over 12% so far this year. This selling pressure likely exacerbated Fastly's stock drop last month.
Now what
As of this writing, Fastly stock has a market cap of $2 billion and is down over 50% so far in 2022. Investors might think this means now is the time to buy the dip with Fastly stock, as shares are much cheaper than they were six, 12, and 18 months ago.
But before you do that, it would be wise to look at the underlying business. Right now, Fastly is not profitable, has not generated positive cash flow in each of the last two years, and is seeing slowing revenue growth. Unless you think one or more of these trends will reverse, it would be smart to avoid Fastly right now, even if shares look cheap compared to where they were trading just a few months ago.
