What happened
Shares of edge cloud platform Fastly (FSLY -0.47%) flopped on Thursday after the company reported financial results for the first quarter of 2023. In reality, it likely wasn't Q1 results that had the market concerned, but rather the guidance for the rest of 2023. Fastly stock finished the day down 12%.
So what
In Q1, Fastly generated record quarterly revenue of nearly $118 million, which was up 15% year over year. Importantly, management had only guided for revenue of $114 million to $117 million and that's about what analysts had expected as well. Therefore, Fastly beat expectations on the top line.
Fastly beat expectations on the bottom line, too. For Q1, management's guidance wasn't in accordance with generally accepted accounting principles (GAAP). But its non-GAAP earnings-per-share (EPS) guidance was negative $0.08 to negative $0.12. For its part, the analyst community was expecting a loss per share of around $0.10. But in reality, Fastly did slightly better with a non-GAAP loss per share of just $0.09.
Therefore, it doesn't seem like the market would have had a problem with Fastly's Q1 results.
Now what
After reviewing guidance, I think I've found the hangup. Last quarter, Fastly's management gave financial guidance for Q1 and for all of 2023. As noted, the company's financial results beat Q1 guidance. However, management today reiterated its guidance for the year rather than raising its guidance to account for its outperformance in Q1.
The market doesn't typically like this, so this could explain why Fastly stock was down today.
That may make Fastly stock an opportunity. The company is adding new customers and existing customers are increasing their spending, even though the growth rates in those metrics have slowed. And although management expects ongoing losses in 2023, it intends for losses to improve compared to 2022. Therefore, there's certainly some reason for optimism for shareholders.
