Thread by @LukeDonay

It’s time to breakdown another popular software name. Here is the breakdown on $FSLY, otherwise known as Fastly.

Current Price: $102.16
52/Wk High: $136.50
52/Wk Low: $10.63

Market Cap: $11.7 Billion

Read below for the breakdown! 🔥

Fastly ($FSLY) is a major cloud software company that owns and operates a real-time Content Delivery Network (CDN) in which allows customers to create and manage the best apps and websites with excellent speed, scale, and security.

Given the digital boom, companies have been shifting onto digital platforms, therefore pushing major companies to CDN companies such as Fastly.

Taking a look at Fastly’s customer list, customers include Shopify, BuzzFeed, Wayfair, Kickstarter, FuboTV, Yelp, Stripe, Business Insider, Kayak, and many more well-known companies.

In recent news, Fastly lost one of its largest customers, TikTok, hurting the company on a mid-term basis. Although, it is important to note that TikTok’s issues were unrelated to Fastly and that management is still very upbeat about Fastly’s future.

Furthermore, Fastly has been rebounding after a recent pullback months ago, when the stock crashed from highs after a gigantic run. Either way Fastly is up 310% in the last year alone.

Digging into the numbers Fastly missed Q3 expectations with an EPS of $-0.04, worse than the expected $-0.01 EPS estimate. On a year over year basis though, EPS has improved 55.56%.

Fastly went on to report Q3 revenues of $71 million, representing a 42% increase on a year over year basis, Not only that but customer count grew significantly as well, with total customers totaling 2,047, much better than the Q2 level of 1,951.

Management also reported a dollar-based net expansion rate or DBNER of 147%, better than the Q2 level of 137%. Net Retention Rate or NRR declined on the other hand to 122% from 138% in Q2.

Taking a look at customer spending, enterprise customer spend increased to $753,000 from $716,000 in Q2 of 2020. It is important to note that enterprise customers account for 88% of revenues.

As for margins, GAAP gross margin landed at 58.5%, better than the same time 2019 level of 55.2%. On the flip side, GAAP operating loss totaled $23 million but improved over the same time 2019 level of $13 million.

Rounding out the quarter, adjusted EBITDA totaled $800,000, better than the same time 2019 level of $-5 million. Finally, cash provided by operations totaled $27 million and free cash flow totaled $13 million.

Shifting into the balance sheet the numbers are solid.

Total Debt: $32 Million

Total Liabilities: $96 Million

Total Assets: $632 Million

Cash & Short Term Inv: $402 Million

As for valuation, Fastly is trading at a significant premium.

Price to Sales: 43.88x

Price to Book: 20.63x

When it comes to management effectiveness, leadership has work to do.

Return on Equity: -16.19%

Return on Assets: -13.41%

Return on Invested Capital: -15.18%

Given the numbers the analysts are bearish with a mean price target of $80.50/share, representing a -22.06% downside.

It is important to note that the high price target is $125/share, representing a 21.03% increase, while the low price target is $47/share, representing a -54.49% loss.

The big money is quite involved though, with 53.28% of Fastly being owned by institutions. Top holders include Abdiel Capital Advisors, The Vanguard Group, and Morgan Stanley Investment Management.

On a technical basis, Fastly has been flat for months. According to the six-month charts, the MACD recently crossed back to the upside with significant momentum within a range of 2.40 down to 0.89.

The six-month charts are also indicating an RSI of 63.72 and CCI of 144.94, both of which are on the high end.

In short, Fastly is a solid company with some issues to work out but strong leadership. Over the long term Fastly will likely do quite well, but the mid-term could produce mixed results.

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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.