On Thursday, DA Davidson downgraded shares of Fastly Inc . (NYSE: NYSE:FSLY) from Buy to Neutral, significantly reducing the price target to $8.50 from the previous $24.00. The adjustment follows Fastly's announcement that its revenue fell short of expectations for the second consecutive quarter and a considerable reduction in the company's full-year 2024 revenue growth forecast.
Fastly's shares dropped 31% after-hours as the company reported a miss in revenue and revised its growth outlook for the calendar year 2024. The initial forecast of a 15-17% year-over-year increase was lowered to just 10-12%.
This revision was attributed to changes in customer behavior towards the end of the first quarter and the beginning of the second quarter. Several of Fastly's top customers renegotiated their contracts, opting to redirect their traffic to alternative providers or to add new ones, a reversal from the vendor consolidation trend observed towards the end of the previous year.
The downgrade to Neutral reflects DA Davidson's view on the second half of the 2024 forecast, which still anticipates a significant uptick in performance despite the minimal revenue stemming from fully committed contracts. The analyst firm has expressed concerns over the company's ability to meet these projections given the recent customer shifts.
The revised price target of $8.50 represents a steep decline from the earlier $24.00 target, mirroring the lowered expectations for Fastly's revenue growth and the impact of customers renegotiating or moving away from their services. This change in target is based on the latest guidance provided by the company and the current market conditions as observed by DA Davidson.
InvestingPro Insights
Following DA Davidson's downgrade of Fastly Inc. (NYSE: FSLY), real-time data from InvestingPro provides additional context for investors. With a market capitalization of approximately $1.77 billion and a negative P/E ratio of -12.91, reflecting investor concerns about profitability, Fastly's financial health is under scrutiny. The company's revenue growth has been positive, with a 16.53% increase over the last twelve months as of Q1 2024, yet this is overshadowed by a significant price drop of 42.74% over the last three months. The InvestingPro Tips highlight that while Fastly's liquid assets do exceed short-term obligations, suggesting some financial flexibility, analysts are not expecting the company to be profitable this year. Moreover, Fastly does not offer a dividend, potentially limiting its appeal to income-focused investors.
Investors considering Fastly's prospects may find the InvestingPro Tips particularly useful. It's noted that Fastly operates with a moderate level of debt, which could be a factor in its ability to navigate current market challenges. However, the company's lack of profitability over the last twelve months and the significant recent decline in its share price may raise concerns. For those looking to delve deeper into Fastly's financial metrics, InvestingPro offers additional insights and tips. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and uncover more than 6 additional InvestingPro Tips that could inform your investment decisions.
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