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Exploring Fastly’s Potential for Investment Growth Unlocking the Potential of Fastly Stock: An Investor’s Journey

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Fastly (NYSE: FSLY), a content delivery network (CDN) provider, has been a subject of fascination for investors since its IPO in May 2019. From soaring highs to tumultuous lows, the company has navigated through challenging waters in the stock market.

Fastly debuted at $16 per share, eventually hitting a record peak of $128.83 on Oct. 13, 2020. However, the current trading price hovers at around $14, marking a stark contrast to its previous glory. A $10,000 investment at IPO would have transformed into over $80,500 before plummeting to less than $8,800 today. In contrast, its competitor Cloudflare (NYSE: NET) exhibited a more steady growth trend, launching at $15 in September 2019 and now trading near $100.

A couple watches a video on a tablet computer next to a river.

Image source: Getty Images.

Fastly faced setbacks due to slower growth, lower retention rates, and narrower margins compared to Cloudflare. An outage in 2021 and the departure of CEO Joshua Bixby in 2022 rattled investors. Despite these challenges, under the guidance of Todd Nightingale, its new CEO, Fastly’s business is showing signs of stabilization, with its stock appearing attractively valued at three times this year’s sales.

Fastly’s Growth Trajectory:

Fastly’s CDN services optimize the delivery of digital content, including images and videos, to websites by storing cached copies on its edge servers. The company also provides protection against bot-based attacks. The expanding CDN market, driven by the demand for media-rich websites amidst faster internet speeds, presents growth opportunities.

From 2019 to 2023, Fastly saw its revenue increase at a compound annual growth rate (CAGR) of 26%, climbing from $201 million to $506 million. Moreover, its customer base expanded from 2,084 to 3,243, and its adjusted gross margin showed slight growth from 56.6% to 56.9%. Despite this robust revenue growth, its net losses widened from $52 million in 2019 to $133 million in 2023 under GAAP.

While Fastly’s growth remains healthy, it lags behind Cloudflare, which boasts a higher adjusted gross margin of 78.3% and continues to stay profitable on a non-GAAP basis. This discrepancy suggests that Fastly is facing challenges in keeping up with its competitor in the CDN landscape.

Forecasting Fastly’s Future:

For 2024, Fastly projects a revenue growth of 15%-17% while narrowing its adjusted operating loss range. Although this marks a deceleration from its 17% growth in 2023, analysts anticipate a CAGR of only 15% in revenue from 2023 to 2026 for Fastly. Conversely, Cloudflare is expected to achieve a 28% CAGR in revenue during the same period, widening the revenue gap between the two competitors.

The global CDN market is projected to grow at a CAGR of 16% from 2024 to 2034. If Fastly maintains a steady 15% CAGR in revenue during this period, its annual revenue could surge from $506 million to $2.4 billion by 2034. Despite this growth, a $10,000 investment may yield around $47,000 in a decade, falling short of a million-dollar outcome.

Assessing Fastly’s Investment Potential:

While Fastly is making strides in acquiring large enterprise clients and reducing losses, Cloudflare appears to be a stronger contender in the CDN sphere, albeit with higher valuations. With several tech companies showing mid-teens revenue growth and stronger profits than Fastly, investors may find more promising opportunities elsewhere.

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Leo Sun is not affiliated with any of the mentioned stocks. The Motley Fool has positions in and recommends Cloudflare and Fastly. The Motley Fool maintains a disclosure policy.

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

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