Not So Fast-ly - Q2 FY12/24 Earnings Review

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Hit The Brakes

by Alex King, CEO, Cestrian Capital Research, Inc

There is nothing great going on at Fastly, which is a shame, since (1) I own the name personally and (2) we’ve had this as an ‘Accumulate’ idea in our subscription services. Bah. This quarter saw revenue growth decelerate further, EBITDA and cashflow margins drop and the balance sheet weaken. The earnings call saw the company admonish themselves about the problems in their largest customers - they didn’t say, but should have said, that this was a function of excessive revenue concentration in one sector. On the plus side they have hired a new Chief Revenue Officer - that’s the artist formerly known as VP Sales I think - who comes from a private equity rollup, Imperva, so even if he didn’t knock the cover off the ball there, he should know what good looks like and be able to spread some of the religion around Fastly. In addition they are taking an ax to the cost base, good. (I never yet saw a company that couldn’t in my opinion have 30pc of costs taken out and nothing bad happen). And finally … the price. 1.6x TTM revenue, ladies and gentleman. Cheap as chips! (I think I probably said that at 2x revenue too, unfortunately).

The upside remains (1) that the company is sold, always a possibility and/or (2) that in the end the compressed valuation proves too tempting and the buying program starts. To the downside - well, until fundamentals put in a low and start picking up, the bad news could continue. Personally I continue to hold this one, it’s a modest allocation so if it went to zero it would be annoying but not ruinous, but everyone should apply their own risk appetite as always.

Here’s the headlines:

Below - available to paying subscribers of all tiers here - we review the fundamentals, the valuation, the stock chart, our rating and price target. Read on folks.