There is lower visibility into Fastly Inc.’s FSLY performance heading into the second half of the year, and execution risks appear elevated.
The Fastly Analyst: Morgan Stanley analyst Sanjit Singh downgraded the rating for Fastly from Equal-Weight to Underweight, while reducing the price target from $18 to $12.
The Fastly Thesis: Fastly faces a more challenging spend environment in the second quarter, Singh explained, citing five reasons for why the risk/reward looked unfavorable:
- Demand is likely to weaken particularly in key verticals such as e-commerce and media which likely continues to put pressure on traffic volumes in the core delivery business, Singh wrote.
- Competition is intensifying, with new players entering the market.
- The company announced the departure of CEO Joshua Bixby, but has not named a replacement.
- Fastly has a “pure consumption business model which will more quickly reflect a slowing demand environment on the income statement versus more companies operating a more traditional SaaS model,” the analyst said.
- The San Francisco-based company has “a long path to achieving operating profitability and positive cash flow.”
FSLY Price Action: Shares of Fastly had declined by 13.78% to $11.64 at the time of publication Monday, July 11.
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