What happened
Shares of Fastly (FSLY 2.87%) popped as much as 21.4% this week, according to data from S&P Global Market Intelligence. The edge cloud computing platform put out a research report on the growth of cybersecurity worldwide and was buoyed by broad market movements. As of 12:37 p.m. ET on Friday, Dec. 2, the stock is up 20.9% this week.
So what
On Nov. 30, Fastly put out a research report on cybersecurity strategies and how they are suffering from complexity. The report indicates that global companies are focused on upping their cybersecurity but are not spending on the category in a smart manner. According to the report, 73% of organizations worldwide are increasing their cybersecurity spending. However, only 61% of the cybersecurity tools are active or fully deployed.
Why is this good for Fastly? It isn't a cybersecurity company itself, but as an edge computing platform, many cybersecurity tools are built on top of its network. If IT departments are set to increase their spending on the category, this could mean more volume flowing through the Fastly network, which means more revenue for the business. Plus, if a lot of cybersecurity implementations are inefficient, companies may want to move to modern cloud-based approaches, which will help Fastly as an edge cloud provider.
On top of this research report, broad market movements for growth stocks likely helped Fastly stock this week. When Federal Reserve Chairman Jay Powell discussed future plans for interest rates, market participants became bullish and started buying stocks this week. Growth stocks have outperformed the S&P 500 this week, a group of stocks that Fastly is a part of.
Now what
Even though investors seem bullish on Fastly stock right now, the company is not in a good place. Last quarter, it had an operating loss of $66 million on only $108.5 million in revenue, which equates to a terrible operating margin of -60%. The company has a long way to go before hitting positive profitability, and in fact it has only seen its operating margin deteriorate as a public company from 30% to 60% today.
With the stock down 70% over the past year, you might think now is the time to purchase shares of Fastly. But with such unhealthy profit margins, investors should stay far away from this company, no matter how far the stock falls.
