Fastly (NYSE: FSLY) stock price continued its sell-off this week as technology equities plunged. The shares plunged to a low of $16 on Thursday, the lowest level since July 10th of this year. It has crashed by more than 33% from the highest level this year.
Growth concerns remainFastly stock price crashed hard even after analysts at Raymond James upgraded the company. In a statement, the analysts noted that its traffic scrapping data pointed to higher traffic in the third quarter.
As such, they estimate that the company’s CDN service generated about $105.5 million. Adding the $18.7 million Signal Sciences revenue, the analysts believe that the company’s revenue will be $124.5 million. He expects that the annual revenue will be $506 million. The note added:
“While we still view these revenue multiples – 4.5x EV to revenue – as high, we believe the steady traffic increases will continue to garner the Street’s attention, especially with recent execution and the appointment of a new CEO.”
Fastly’s business has been doing relatively well as its revenue growth accelerates. Its revenue rose by 20% YoY in the second quarter to over $122.8 million. Its Signal Sciences revenue jumped by 32% YoY and was about 14% of its total revenue.
There are several reasons why Fastly’s fundamentals are quite strong. First, it is one of the most important companies in the world, powering some of the biggest websites in the world like X, Udemy, Slack, New York Times, and Reddit. 92% of its customers are large enterprises.
Second, the firm has a very low churn since most of these companies have no reason to move to another provider. Third, it is growing its margins even as the cost of doing business rise. Its gross profit margin was 56.6% in Q2, up from 55.6% in the previous quarter.
Finally, Fastly has adequate cash in its balance sheet. It had over $475 million in cash and equivalents even after it repurchased $236 of its convertible debt.
Fastly stock price forecast
The daily chart shows that the FSLY stock price has been in a steep sell-off in the past few days. It has dropped from the year-to-date high of $24.21 to the current $15.9. Along the way, the shares have moved below the lower side of the ascending channel.
The stock has moved below the 50-day moving average while the Relative Strength Index (RSI) has moved to the oversold level. Therefore, technicals point to more downside in the coming weeks. If this happens, the next level to watch will be at $11.3.
The alternative is a situation where the stock bounces back and retests the upper side of the ascending channel at $23.90.
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