The Fastly stock price plummeted by more than 14% on Monday as concerns about the company’s growth continued. FSLY shares are trading at $11.65, which is the lowest they have been since July 5th. In total, the stock has crashed by more than 91% from its highest level in 2021, bringing its market cap to about $1.4 billion. Similarly, Cloudflare’s stock price has crashed by over 53% in the past 12 months.
Why did FSLY crash?
Fastly is a cloud computing company that many people have never heard about. Yet it is one of the most important companies in the world. Indeed, millions of people use its products every day without even knowing it. For example, it helps companies like Reddit, New York Times, Yelp, and Stripe power their solutions.
Fastly provides services like Content Delivery Network (CDN), Application Delivery Controllers (ADC), and Web Application Firewalls (WAF). As such, if the network goes down, millions of people cannot access important solutions. For example, it is almost impossible to pay for Uber trips since the firm uses Stripe.
The Fastly stock price has been in a deep dive in the past few months as investors worry about the company’s growth and valuation. Analysts believe that the growth that has existed in the past few months will be hard to replicate. Besides, most companies have already invested in CDN and other security solutions. In a note, an analyst at Morgan Stanley wrote the following about Fastly:
“We think risk/reward is relatively less attractive versus our coverage universe where we favor names that are better secularly positioned and effectively executing against their market opportunities such as MongoDB and Datadog.”
Is Fastly a good investment?
Fastly is a vital company that has a strong market share in its industry. Other companies it competes with are Cloudflare, Akamai, Imperva, and Limilight among others. It has managed to get high-level customers who will continue using its services for a long time.
However, the company faces numerous challenges going ahead. As mentioned, many big companies already have their providers already. As such, the growth path is a bit difficult to map.
Second, Fastly has a long path to profitability. In 2021, its net loss rose to over $222 million from the previous $95 million. It has lost over $236 million in the trailing twelve months. Therefore, while it will continue narrowing its losses, the path to profitability is slim.
Third, like other fintech companies like Waitr and Upstart, there are concerns about the rising interest rates. Historically, companies like Fastly tend to underperform in a period of high-interest rates. More so, analysts expect that companies will slash their IT spending.
Fastly stock price forecast
The daily chart shows that the FSLY stock price has been in a strong bearish trend in the past few months. Now, the stock has formed a parallel channel pattern that is shown in blue. It is now approaching the lower side of this channel. It also remains below the 25-day and 50-day moving averages.
Notably, it has formed what looks like a bearish flag pattern. Therefore, I suspect that the sell-off will continue in the coming weeks as sellers target the support at $8.