Yesterday, cloud service provider Fastly (NYSE:FSLY) demonstrated the impact it has on the internet as a whole. Today, however, Fastly slipped 2.2% in premarket trading and that decline continued into this morning's trading session. The biggest reason for Fastly's decline was not the massive internet outage seen yesterday, but rather, a downgrade from one analyst. Analysts were already a bit skeptical about Fastly's outlook going forward, and the latest downgrade served to help cement the notion.
Fastly Stock Downgraded Over Low Barriers to Switching
The downgrade came from Oppenheimer, via analyst Timothy Horan, and the downgrade had nothing to do with the massive internet outage caused yesterday by a customer changing their settings. Rather, Oppenheimer issued the downgrade from “outperform” to “market perform” mostly based on customer behaviors.
Horan noted that the costs to customers deciding to switch from one cloud service provider to another are fairly slim. From here, it becomes clear that there are few barriers to switching customers, which means customer revenue may not be as sticky as some would like. Competition becomes brisk, and anyone who can offer a better deal in one way or another—more services, lower prices and so on—has a greater likelihood of drawing customers away from Fastly.
Horan also noted, at last report, that the outage that occurred yesterday had little to do with the downgrade in recommendation. Horan actually cited Fastly's quick and highly appropriate response to the outage, even noting that cloud services outages happen to all providers at some point. The downgrade seems to have hit strictly as a matter of market conditions, not the system failure that sent news sites, government homepages, and a host of other media crashing Tuesday. Horan did note that the recent outage could “...impact new sales for a while,” which isn't out of line; a company that suffers a recent outage or other setback tends to suffer in sales for some time. Horan also considers Fastly's 2021 guidance to be “...heavily back-end loaded,” reports noted.
What Are Financial Analysts Saying About the Fastly Stock Price?
Oppenheimer's downgrade from effectively “buy” to “hold” actually echoes a lot of sentiment previously seen throughout the financial analyst field. The current consensus for the Fastly stock forecast is a “hold” rating, and that consensus has been the consensus for better than two years now. There have been signs of slight increases in bearishness, however, as evidenced by an increasing presence in “sell” recommendations.
A year ago, Fastly had one “buy” rating, five “hold” and two “sell” ratings to its credit. Six months ago, that shifted to three “buy”, seven “hold” and four “sell.” Today, meanwhile, we're at two “buy”, seven “hold” and four “sell”. The increases in “hold” and “sell” ratings aren't positive signs for the company's long-term health, even with “buy” recommendations up slightly but trending downward in recent developments.
It's also worth noting that Fastly insider Artur Bergman recently sold 14,423 shares of Fastly stock. While Bergman still has a substantial quantity of Fastly stock—Bergman now holds 313,944 shares even after the latest sale—Bergman has been engaged in a fairly regular pattern of selling Fastly stock for some time now. Bergman sold blocks of Fastly stock five times in the month of May alone, and for the first time in several months, in varying amounts. Bergman sold four blocks in April, each time selling 14,423 shares. He also sold that same quantity on March 29. In May, however, he sold two blocks of 14,423 shares, but then sold a block of 16,853, a block of 9,076, and a block of 19,770.
The consensus for a Fastly stock price target, meanwhile, hold a comparatively broad range. The current consensus Fastly share price target is $73.50, with a low of $47 and a high of $95 contributing to the average. With Fastly stock currently trading at $52.79 as of this writing, there is some downside potential evident here.
Recent action for Fastly has been mixed for analysts; in May, one analyst—Piper Sandler—raised its price target from $45 to $65. Meanwhile, two analysts lowered their price targets, with Craig Hallum going from $80 to $55 and DA Davidson going from $105 to $60. Raymond James, meanwhile, led off May by having no price target and reiterating its earlier rating.
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