Fastly (FSLY) stock price analysis: is it safe to buy this dip?

By:
on May 2, 2024
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  • Fastly’s share price has crashed hard after earnings.
  • The company provided a weak forward revenue guidance.
  • Technicals point to more downside in the coming months.

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Fastly (NYSE: FSLY) stock price has collapsed after the company’s growth slowed. It peaked at $136.45 in October 2020 to a low of $12.9 on Wednesday. This sell-off accelerated in the after-hours as it dropped by over 30% following weak forward guidance.

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Fastly’s fall from grace continues

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Fastly is one of the most important companies in the world. It is a digital infrastructure company that provides a Content Delivery Network (CDN) to companies from around the world. 

Some of its most notable clients are companies like the New York Times, Stripe, SpaceX, and Reddit. It competes with firms like Cloudflare, Amazon CloudFront, Akamai, and Microsoft.

Fastly’s business has been in a strong growth path in the past few years as its revenue rose from $200 million in 2019 to over $506 million in 2023. This growth happened as the number of companies using the service increased.

Fastly has also made progress in narrowing its losses. Its net loss peaked at $22.7 million in 2021 and dropped to $190 million in 2022 and $133 million in 2023. That happened as the firm reduced its operation costs.

Fastly’s stock price crashed hard after it published its first quarter earnings. Its revenue rose from $117 million in Q1’23 to $133.5 million in Q1’24. It also expanded its gross margins from 51.3% to 54.8%. As a result, Fastly’s operating loss came in at $46.2 million, down from $47 million in the same period in 2023.

Fastly expects that its revenue for the second quarter will be $130 million, a small increase from last year’s $122.8 million. For the year, its revenue will be between $555 million and $565 million. The average estimate for the year was about $584 million.

There are other concerns about Fastly’s business as the company’s 10 biggest customers accounted for about 38% of its total revenue. That is a risky approach since losing a single customer can lead to substantial challenges. In a statement, the CEO said:

“Historically, Fastly has gradually won greater traffic share in our largest accounts. But with the timing of rate and volume changes, we saw increased volatility this quarter.”

The other risk is that Fastly will struggle to attract large customers going forward. At this stage, many big companies have a CDN provider, and in most cases, companies don’t change their providers often.

Fastly stock price analysis

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FSLY chart by TradingView

The weekly chart shows that the FSLY share price crashed hard from a record high of $136.45 in 2021 to a low of $7 in 2022. Since then, the stock has been attempting to bounce back, reaching a high of $25.90 in March. 

It has now crashed hard and moved below the 50-week Exponential Moving Average (EMA). The stock also formed a bearish flag pattern before the current crash. The Relative Vigor Index (RVI) has moved below to its lowest swing in months.

Therefore, the outlook for the stock is extremely bearish, with the next point to watch being its all-time low of $7. A break below that level will point to more weakness, potentially to $5.

In my opinion, I believe that Fastly should explore strategic alternatives, including a buyout. It could attract bids from private equity companies or other large firms.

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