Shares of content delivery network (CDN) Fastly (FSLY 2.35%) fell on Monday morning after receiving an analyst downgrade. It didn't help that the market was down sharply as well, providing further downward pressure. As of 11:20 a.m. ET, Fastly stock was down 14%.
According to The Fly, Morgan Stanley analyst Sanjit Singh recommends selling Fastly stock and has lowered its price target for the stock from $18 per share to $12 per share.
According to TipRanks, Singh began covering Fastly stock at the beginning of the year. When they initiated coverage in January, they gave it a price target of $43 per share, according to The Fly. But as Fastly stock has fallen, so too have the price targets.
The big difference today with Singh's outlook comes to the rating Fastly stock was given. Before, Singh believed it was a stock at least worth holding but not necessarily buying. But now Singh believes it's worth selling due to potential problems in the second half of 2022.
Price targets from analysts are often reactionary, as Singh's price targets demonstrate. Fastly stock is down roughly 67% year to date, and price targets have come down accordingly. However, price targets do have the potential to cause the market to react in the short term nonetheless. And that's why Fastly stock was down today.
In fairness to Singh, Fastly's own guidance reflects challenges ahead. After reporting earnings for the first quarter of 2022, management guided for up to $415 million in full-year revenue and an non-GAAP (adjusted) operating loss of $60 million at best. Assuming the company achieves this best-case scenario, revenue would increase 17% year over year, but its non-GAAP operating loss would also increase by about 9%.
In other words, Fastly is poised for growth in the second half of 2022. However, its loss continues to widen. And given the challenges in the economy right now, that might not be a great position to be in.
Fastly is scheduled to report financial results for the second quarter of 2022 on Aug. 3.