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Beware of This Recently Downgraded Software Stock

Published 06/15/2021, 10:15 AM
Updated 06/15/2021, 11:30 AM
© Reuters.  Beware of This Recently Downgraded Software Stock

© Reuters. Beware of This Recently Downgraded Software Stock

Content delivery network provider Fastly (NYSE:FSLY) last week triggered a global internet blackout that affected popular websites and government servers. While the outage has been attributed to a solitary software bug, the company’s market reputation took a big hit, causing Oppenheimer analysts to downgrade the stock from Buy to Hold. And because analysts expect FSLY’s growth potential to remain subdued in the near term, we think the stock is best avoided now. Let’s discuss.Real time content delivery network company Fastly, Inc. (FSLY) was downgraded by Oppenheimer on June 10, causing the stock’s price to decline 6.2% from a $54.73 intraday high. Oppenheimer analyst Timothy Horan downgraded his rating on the stock from Buy to Hold following the global internet outage triggered by a software bug.

Though the company’s prompt response has drawn praise, Horan expects investors to switch to alternative platforms given the lower cost of switching content distribution network (CDN) for second source providers, and the large number of established players.

In addition, FSLY’s mixed performance in the last quarter has created uncertainty regarding the company’s operational efficiency. Despite a 35% year-over-year rise in revenues in the first quarter, ended March 31, FSLY’s non-GAAP loss per share doubled to $0.12. And its operating loss increased 316.7% from the same period last year to $50 million. FSLY's share price has slumped 34.3% year-to-date, and 22.5% over the past three months.

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