5 Reasons Why This Analyst Downgraded Fastly

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.