Fastly Q1 FY12/24 Earnings Review
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The Problem With Small Caps
by Alex King
Summary:
- Fastly reported good progress in accounting earnings and cashflows.
- The quality of business is improving markedly under the new management team; from margins to reporting to capital efficiency.
- BUT the revenue guide is weak, and the stock got crushed by around 30% on the print as a result.
- Companies this size have volatile stocks - the only way to play them safely is either (1) not at all or (2) by controlling position size.
Please, Amazon or Cisco, Put Me Out Of My Misery
This morning we reported on a pandemic survivor, Pinterest (here), whose stock has more than doubled since the 2022 lows. Fastly, on the other hand, just decided to head back to within about 20% of its bear market lows. The new management team at the company is doing sterling work on all fronts save for revenue growth, which is anemic and getting worse. Unfortunately the one thing that small cap tech investors look for is, you guessed it, revenue growth, and preferably accelerating revenue growth. So the price is likely in the doldrums for a while, I think. A smart management team can certainly dial up growth, but it doesn't usually happen in the space of one quarter - usually it's 9-12 months to really get the flywheel speed up.
The best hope for Fastly shareholders (I am one, sadly!) to my mind is that the company is finally sold to one of its multiple potential suitors. Cisco and Amazon are both thought to have run the numbers previously. At around 2x TTM revenue and the company generating operating cashflow - which it did this quarter - this is a cheap product to pick up for any tech major. The cash generation means that the acquisition ought to be EPS accretive very quickly, which matters to bigs.
Anyway, let's get to the numbers.
Headline Numbers
