On Monday, Piper Sandler shifted its stance on Fastly Inc . (NYSE:NYSE:FSLY) stock, moving the stock's rating from Neutral to Overweight, although the firm lowered the price target to $16.00 from $19.00. The adjustment comes after Fastly's year-to-date pullback of 30%, with the new target based on 3.5 times its estimated calendar year 2025 sales.
The upgrade is attributed to several factors that could potentially drive Fastly's growth. These include multiple upside levers in its content delivery network (CDN) business, which have emerged following a reset in the fourth quarter of 2023 and recent trends observed by CDN Times, indicating that Fastly is gaining market share.
Piper Sandler also notes a favorable competitive landscape for Fastly, marked by the exit of some competitors, which could lead to new opportunities and better pricing structures. Additionally, the strength in new business is expected to create tailwinds for 2024. The firm also pointed out that while customer concentration can be a double-edged sword, there appears to be no imminent risk, with major customers experiencing the best relative traffic growth.
The analyst firm anticipates that new security products will enhance Fastly's portfolio and could drive significant incremental growth. Furthermore, the report suggests that there could be profitability upside, given the dynamics of the top line and conservative operating expense assumptions.
Lastly, Piper Sandler considers the current valuation and fundamentals of Fastly to present a favorable risk-reward scenario for investors. The firm's updated view reflects anticipation of conservative assumptions moving forward, along with the introduction of new SaaS packaging that could increase visibility into the company's performance.
InvestingPro Insights
Recent data from InvestingPro underscores the nuanced picture presented by Fastly Inc.'s (NYSE:FSLY) financial metrics and market performance. With a market capitalization of $1.68 billion, the company's revenue growth remains robust, recording a 16.93% increase over the last twelve months as of Q4 2023. This is complemented by a solid gross profit margin of 52.64% for the same period, indicating the company's ability to maintain profitability on its core services despite broader challenges.
InvestingPro Tips highlight a high shareholder yield and the fact that Fastly's liquid assets exceed its short-term obligations, providing some financial stability. However, it's important to note that analysts have revised their earnings downwards for the upcoming period and do not anticipate the company to be profitable this year. Additionally, the price has fallen significantly over the last three months, which could signal a buying opportunity for investors who believe in the company's long-term strategy.
For those considering an investment in Fastly, it's worth exploring the additional 15 InvestingPro Tips available, which could provide deeper insights into the company's performance and potential. Interested investors can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes these valuable tips. With the next earnings date set for May 1, 2024, investors will be keenly watching for signs of Fastly's ongoing market share gains and the impact of new security products on its profitability and growth trajectory.
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