Fastly has been at the tip of everyone’s tongue for a while now after some jaw-dropping returns in 2020. At the closing bell on Wednesday, the stock was up almost 500% year-to-date and over 1,000% from its 52-week lows back in March. With a performance like this, it’s no surprise that it became a popular stock to trade amongst Fintwit, Robinhood, and even Barstool Sports’ David Portnoy. However, with great hype comes great responsibility: cue Wednesday evening.
Fastly stock plummeted as much as 30% in after-hours trading after the company revised its guidance. It is now expecting to report revenue of $70-71 million for the quarter, instead of $73.5-75.5 million. The company announced:
“Due to the impacts of the uncertain geopolitical environment, usage of Fastly’s platform by its previously disclosed largest customer did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer”.
The largest customer in question is TikTok.
Now, while a 27% drop in the stock price of a $10 billion company over $4 million seems like quite the over-reaction, you have to realize that Fastly has been priced to perfection for quite a while now. Stocks with valuations such as Fastly’s are held to a higher standard than most as investors pay a premium for growth, if this growth is in any way jeopardized, they will be quick to abandon ship. It’s worth keeping in mind when looking at some of Wall Street’s high fliers such as Peloton, Sea Limited, or Cloudflare. Any deviation from the path laid out by its investors will be punished accordingly.
In our exclusive subscriber-only podcast in the MyWallSt app, our head analyst Rory Carron discusses the current premium for growth investors are willing to cough up right now while discussing one of the most exciting stocks on our shortlist.
What’s next for Fastly?
While I wouldn’t fret over the day-to-day movements of any stock in my portfolio, there may be more to this story than just $4 million in revenue. In the same statement in which they announced the revision of its guidance, Fastly executives also cited “a few customers” whose usage fell below expected levels. This, coupled with the potential fallout for Fastly from the TikTok-Oracle deal, has soured sentiment from a few analysts on Wall Street. Baird has downgraded the stock from outperform to neutral, while Stifel has downgraded it to a hold from a buy rating.
For long-term investors in the company, this will be a minor hiccup I feel as the stock remains up more than 300% year-to-date.
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Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.