FSLY Stock Just Lost 38% in a Single Day — Here’s What Wall Street Missed

What transpired with Fastly this week has an almost theatrical quality. The market punished the stock by almost 40% in a single trading session after the company reported record numbers, including $173 million in revenue, a 20% increase from a year ago, and profitability on an adjusted basis for the first time in a long time. FSLY was down $12.07 in a single day, closing at $19.50 on Thursday. Anyone watching the tape that afternoon could sense it: that odd, almost surgical sell-off in which the price action completely contradicts the news headline, which reads like a victory.

The math is truly bizarre, so it’s worth pausing on it. quickly increased its guidance for the entire year. Revenue from security increased by 47%. A few years ago, the Compute segment hardly showed up as a line item; today, it has increased by 67%. Earnings comfortably exceeded forecasts. Traders continued to sell the stock. Depending on the analyst you consult, the explanation boils down to one number: eleven. The company’s largest and oldest segment, Network Services, has grown by that percentage. Wall Street wasn’t in the mood to be giving, despite management’s claim that 11% is still double the overall market rate.

The tension in the analyst’s responses is evident. Citing the slowdown in network services, DA Davidson lowered its price target from $24 to $21 and maintained a neutral rating. RBC Capital lowered its goal to $18. The term “deceleration” began to appear in research notes in the same urgent, recurring, and unavoidable manner as storm warnings on weather apps. The market seemed to have priced in something that was almost perfect, and anything that wasn’t acceleration seemed like a flaw in the thesis.

The context of this entire episode is what makes it unique. Earlier in the year, Fastly’s stock had increased by more than 200%. a 12-month return of 424%. The run had been exceptional by all standards; it was the kind of action that transforms retail forums into late-night coliseums. The market value of about $1.5 billion vanished in a matter of hours. The optics were also negatively impacted by insider selling. Executives sold about $39.6 million worth of shares over the last three months, including a $720,313 sale that was reported in late April, according to SEC filings. Although insider selling isn’t always a warning sign, when the stock begins to act strangely, it usually seems like one.

All of this has a familiar quality. Like Akamai before it, Cloudflare experienced similar growth pains. In order to fight illicit sports streaming, Fastly recently formed an alliance with LALIGA. This kind of agreement signifies legitimacy beyond the hype cycle. Edge computing is a real business with real customers. However, there is still a stubbornly large gap between what the technology can accomplish and what investors are willing to pay for it. Following the rally, Fastly was trading at about 71 times forward earnings, carrying expectations that left little room for disappointment.

As this develops, it’s difficult to avoid wondering if the sell-off reveals more about market psychology than it does about Fastly. The business is expanding. It’s starting to turn a profit. Bulls have long maintained that its highest-margin businesses are growing more quickly than its legacy ones. Nevertheless, the stock is currently trading closer to its 52-week low than its peak. What happens to Network Services over the next two quarters will likely determine whether that is an overreaction or a long-overdue correction. Until then, FSLY continues to be one of those names where the price chart and the fundamentals appear to be telling entirely different stories, and only one of them can be correct.