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Fastly (FSLY) stock forecast: Is the comeback on?

By Ryan Hogg

Edited by Jekaterina Drozdovica

12:08, 12 January 2022

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Fastly (FSLY) stock forecast: Is the comeback on? – Photo: Shutterstock

Fastly (FSLY) has had a difficult year in 2021, with shares falling on the back of underwhelming earnings reports. Yet after the recent acquisition of Signal Sciences, can the computing services provider get back on track towards its 2025 $1bn revenue target, and what factors are shaping FSLY stock forecast this year?

Fastly is a cloud computing service. It debuted on the NYSE in May 2019 through an initial public offering (IPO) priced at $16.00 a share.

FASTLY STOCK PRICE FORECAST

Fastly stock analysis: A technical view

Fastly experienced a year to forget in the stock market in 2021, as its share price fell from a peak of $117.86 on 9 February 2021 to $62.05 by 8 March 2021, wiping out almost half its value. 

This set a trend for the rest of the year, with gradual improvements through a quarter undone by disappointing earnings reports. The stock has disappointed investors with a one-year loss of 61.69%. 

Fastly stock chart since the IPO, 2019-2022

One-day technical indicators are pointing to a bearish direction at the time of writing (11 January), with 14 indicators giving ‘sell’ signals, 10 ‘neutral’ and two ‘buy’ The. Relative Strength Index (RSI) is neutral at 40.02. An RSI reading below 30 would indicate an underbought or undervalued condition. 

Fastly stock price and RSI indicator, 2021-2022

Driving from the back of a booming cloud services sector

The onset of Covid-19 supercharged the cloud computing sector as remote working and the need for a centralized software framework went global. Research by the Synergy Research Group shows enterprise spending on cloud infrastructure services exceeded $45bn in the third quarter of 2021, a 37% increase from the same period last year.

This spending is dominated by traditional big hitters like Amazon (AMZN), Microsoft (MSFT) and Alphabet’s Google (GOOGL), which make up a collective 53% of cloud infrastructure market share.  

But the findings show there remains ample room for incumbents to grow their base. Companies outside the top 13 biggest cloud infrastructure providers, which make up 15% of market share, grew by 25%, only bested by Amazon out of the top three providers.

Cloud infrastructure services market

Within that sphere, Fastly will hope for its own fast-scale growth. In the latest Fastly stock news, in its latest earnings report the company maintained the goal to achieve $1bn in revenue by 2025. This would amount to average annual growth of 28% between 2020 and 2025, based on full-year 2020 revenues of $291m – a task that may not be regarded as insurmountable based on 45% growth over 2020, and 22% year-on-year revenue growth in the latest quarter.

Increases in revenue-generating developers and an expansion of their security business will add to acquisitions for the company as it aims to add scale in the face of a flagging share price.

Based on research by Andreesen Horowitz, Fastly were operating at the tail end of public software providers with gross profit multiples of around 0.4x, while the company’s gross margin recently fell to 52.4%. In their latest earnings report, Fastly explained this as a correction to normal trends following surging traffic during the height of Covid-19 lockdowns.

However, industry-wide analysis also suggests that an additional $4bn of profit would lead to an increase of $100bn in market cap across the 50 companies assessed by the group. This suggests that improvements to Fastly’s balance sheets in the coming years could disproportionately improve its share price.

If Fastly were to hit its 2025 targets, a strong increase in market cap could be expected. The company’s $1bn target for 2025, up from $290m in 2020, may be helped by the acquisition of Signal Sciences, which has boosted 12-month trailing revenue to $339.26m. Though, again, rising costs continue to hold the stock back.

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Growth-adjusted 2021 estimated revenue multiple, 2021

Latest earnings show continued losses

The company doubled losses between Q3 2020 and Q1 2021, while only growing revenue by 17% on the back of its $775m acquisition of Signal Sciences.

The expectations of such losses heavily contributed to the company’s hemorrhaging share price in February last year, and the lack of movement in those fundamentals since c ould be contributing to the company’s stock experiencing continual decline.

Latest earnings figures for the third quarter of 2021 indicate revenues continued to grow year-on-year for the company, up 23% on Q3 2020. The company continues to grapple with the costs of acquiring Signal Sciences, with year-on-year operating expenses increasing from $65m in Q3 2020 to $100m in Q3 2021.

Third-quarter net loss of $56.12m is more than doubled on Q3 2020’s $23.78m loss, though loss per share of $0.11 beat analysts’ consensus estimate of $0.45. 

Enterprise customer count, defined as those spending more than $100,000 over 12-months and which Fastly says accounts for 88% of its 12-month-trailing revenue, increased from 408 to 430 over the year, with total customers increasing by 6.5%.

The company’s full-year 2021 earnings are expected in mid-February. As it stands, the company’s forward guidance for Q4 2021 indicates negative earnings per share (EPS) between -$0.16 and -$0.19, with revenues between $90m and $93m.

Fastly (FSLY) stock forecast

While the company is now trading at much lower levels, analysts appear to think that the stock could have a potential upside in the latest Fastly stock price predictions.

CHART

The average Fastly stock price target for the next 12 months based on nine analysts’ views compiled by MarketBeat, currently sits at $45.38, ranging from the high of $85 to the low of $33. 

The stock has a consensus ‘hold’ recommendation, with one analyst rating it a ‘sell’, seven a ‘hold’ and one a ‘buy’. 

Morgan Stanley gave the most bullish Fastly share price forecast of $43 that would bring the share price back to levels from 9 December.

Likewise, Raymond James’ price target of $42 suggests an upside for the stock. The company has upgraded Fastly from ‘market perform’ to ‘outperform’. 

Piper Sandler’s $35 target, while a downgrade from an initial $50 target, still indicates the stock could have an upside of at least 9%, based on estimates in the last two months.

Fastly stock analyst price targets and ratings, October 2021 - January 2022

Note that analysts’ FSLY stock projections can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQs

Is Fastly stock a good buy?

The stock has a consensus ‘hold’ recommendation, based on nine analysts’ views compiled by MarketBeat, with one analyst rating it as a ‘sell’, seven ‘hold’ and one ‘buy’ ratings. 

Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

Why has Fastly stock been going down?

Fastly stock is down following a collection of underwhelming earnings reports which has seen the stock endure a sustained fall through 2021. The acquisition of Signal Sciences has increased the group’s operating expenses and contributed to loss-making.

Will Fastly stock go up?

The average Fastly price target for the next 12 months based on nine analysts’ views compiled by MarketBeat, currently sits at $45.38, ranging from the high of $85 to the low of $33. 

Note that analysts’ predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

Markets in this article

GOOG
Alphabet Inc - C (Extended Hours)
179.30 USD
-3.96 -2.170%
AMZN
Amazon.com Inc (Extended Hours)
183.67 USD
-5.2 -2.760%
FSLY
Fastly, Inc.
7.94 USD
-0.29 -3.560%
MSFT
Microsoft Corp (Extended Hours)
436.99 USD
-7.61 -1.720%
GOOGL
Alphabet Inc - A (Extended Hours)
177.54 USD
-4.12 -2.270%

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