Markets

Why Fastly Stock Slipped on Thursday

What happened

Shares of Fastly (NYSE: FSLY) fell by as much as 5% on Thursday before recovering to close 1.4% lower. This wasn't, thankfully, due to any operational issue like the global outage of its services that rocked many websites Tuesday morning.

So what

Rather, Fastly's decline seemed linked to an analyst downgrade. Oppenheimer prognosticator Timothy Horan cut his recommendation on the content delivery network (CDN) to perform (neutral), from the previous outperform (buy). Horan also withdrew his $85 per share target price on the tech stock.

Two people reacting to something on a PC monitor.

Image source: Getty Images.

He wrote in a research note that, "Outages happen to all cloud companies, and FSLY responded rapidly and with candor, but switching costs for CDNs are relatively low, and customers could look for second-source providers." He cited Akamai Technologies and Cloudflare as two ready examples. In contrast to Fastly, both stocks rose on Thursday.

Horan also said the outage, which affected numerous high-profile websites, might have a negative impact on new sales.

And he noted that the company is facing difficult comparisons on both revenue and margins in the second quarter of 2021, and "guidance was heavily back-end-loaded, with uncertainty compounded by CFO and [investor relations] turnover."

Now what

Horan certainly makes valid points, particularly about the presence of competitors that would be eager to poach Fastly clients. I think this concern is a bit overblown, though, as Fastly proved to be adept at fixing the outage -- a reaction that certainly scored points even with clients that were affected by the incident.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cloudflare, Inc. and Fastly. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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