Fastly Stock Plummets: What's Behind the Fall?

Fastly Inc. (FSLY) stock is taking a nosedive today, with shares plummeting over 21% in extended trading. The edge cloud computing platform reported mixed fourth-quarter earnings, missing Wall Street's break-even expectations and posting a net loss of $32.8 million. So, what's causing Fastly's stock to plummet?



1. Slow Revenue Growth: Fastly's revenue inched up 2% from a year earlier, to $140.6 million, surpassing the Street's consensus forecast of $138.29 million. However, the company's core business, network services, accounted for $110.1 million in sales, which was flat from the same period one year earlier. This stagnation in the company's primary revenue stream contributed to the overall revenue growth slowdown.
2. High Dependency on Large Clients: Fastly relies heavily on a small number of large clients for a significant portion of its revenue. This high dependency on a few clients poses a risk if any of these clients decide to switch providers, which could lead to a further slowdown in revenue growth.
3. Limited Global Presence: Although Fastly operates in several countries, its global footprint is not as extensive as some of its competitors. This limited market reach may hinder its ability to tap into new markets and drive long-term growth.
4. Increasing Competition: The content delivery network market demonstrates intense competitive pressures, with 17 direct CDN competitors and an average customer churn rate of 8.2%. This competitive landscape puts downward pressure on pricing and may impact Fastly's ability to maintain or grow its market share.



Fastly's Chief Executive Todd Nightingale hailed the company's performance, saying its revenue was a new record for the fourth quarter. However, the company failed to match that optimism with its guidance for the current quarter. It said it's looking at a first-quarter loss of between five and nine cents per share, well below the Street's forecast of a penny loss. For fiscal 2025 as a whole, Fastly is looking at a loss of between nine and 15 cents per share, falling well short of the Street's hoped-for profit of three cents per share.

Investors didn't like those numbers, and many of them bailed on the company in the hours after the report, sending its stock down more than 21% in extended trading. Breaking down its latest results, it's easy to see where Fastly is struggling. The company said network services, its core business, accounted for $110.1 million in sales, flat from the same period one year earlier. Security revenue fared a little better, rising 4%, to $26.9 million, but the only real bright spot was the company's nascent cloud infrastructure business, which includes its compute and observability services. Sales there jumped 63% from a year earlier, to $3.6 million, but investors are well aware that the segment remains tiny.

In conclusion, Fastly's stock is plummeting today due to a combination of slow revenue growth, high dependency on large clients, limited global presence, and increasing competition. The company's guidance for the current quarter and fiscal 2025 also failed to impress investors, leading to a significant sell-off. To turn things around, Fastly must focus on diversifying its customer base, expanding its global presence, and innovating to stay ahead of the competition.