Will Fastly's share price continue to outperform post-earnings?

Fastly’s [FSLY] share price might not be on every trader’s radar, but the US cloud company has experienced stellar growth this year.

Solid demand and the current trend for all things cloud-based have seen Fastly's share price go from $21 a share in January to north of $100 in August. That's a phenomenal 440.37% gain year to date through 4 August’s close and, with quarterly earnings around the corner, Fastly's share price could be about to climb even higher.

So, is it time to buy ahead of second-quarter earnings, or is Fastly’s share price about to see a dramatic slowdown?

When is Fastly reporting Q2 earnings?

5 August

Why should investors care?

Rapid growth

Fastly's content delivery network (CDN) helps companies handle more website and app traffic without affecting performance. Big players like Pinterest and Amazon use the service to load images on their sites. No matter how many people are on a page, Fastly ensures rapid responsivity. 

With more people at home surfing the web due to lockdown, Fastly has seen an increase in traffic and sales. Last quarter, Fastly’s revenue increased 38% to $63m compared to the same quarter last year. The average spend from customers has also been increasing, going from $607,000 to $642,000. If this trend continues in the upcoming results, Fastly's share price could see a post-earnings bounce.

Joshua Bixby, Fastly CEO, said: “These unprecedented times highlight the importance of digital transformation now more than ever, and our innovative and resilient customer base enables us to remain confident in the demand for our mission-critical services and the accelerated growth of our business."

“These unprecedented times highlight the importance of digital transformation now more than ever, and our innovative and resilient customer base enables us to remain confident in the demand for our mission-critical services and the accelerated growth of our business” - Joshua Bixby, Fastly CEO

In-house confidence

Confidence is high at the firm, which may well promote further growth for Fastly’s share price. During first-quarter results, the company upped full-year revenue guidance from between $255m and $265m to between $280m and $290m. Non-GAAP operating losses were also reduced and are now expected to come in between $10m and $20m. Maintaining or further improving these figures could see Fastly’s share price enjoy another boost post-earnings.

It's not only Fastly who are confident in its future performance. The company currently sits in seventh place in Zacks Computer and Technology group. Given that there are 606 other companies in the grouping, this top ten position is an impressive feat. Compared to the sector's average 14.02% return since the start of the year, the company’s gains in 2020 so far are nothing short of phenomenal, and may be seen to justify Fastly’s share price gains. 

What is Wall Street expecting in Q2 results?

Wall Street is forecasting a $0.01 loss per share, an improvement on the $0.16 loss seen in the same quarter last year. Revenue is forecast at $71.4m, up an impressive 58.2% from the $45.14m seen in the same quarter last year.

Fastly itself is predicting similar numbers. The cloud company expects total revenue of between $70m and $72m for the second quarter. Operating losses are expected to come in below $2m, while losses per share are pegged at less than $0.02. If these figures are achieved in Q2, Fastly’s share price may well see a further upside this year.

So, is an earnings beat on the cards? According to Zacks, Fastly’s ESP has risen 1.72% over the past 30 days, indicating analysts are becoming increasingly bullish on the stock. In the past three quarters, Fastly has managed to beat analyst expectations. Last quarter saw losses per share come in at $0.06, thrashing expectations of $0.17.

So, time to buy Fastly?

Among analysts, the cloud company has an average price target of $67.38 which would see a significant 42% downside on Fastly’s share price through 4 August’s close. A major concern for analysts is Fastly's reliance on CDN revenue, which could decline after the coronavirus. At the start of July, the company saw a string of downgrades, including Citigroup moving its rating from Neutral to Sell. Investors will need to weigh up the risks before buying into Fastly.

Fastly share price vitals, Yahoo Finance, 5 August 2020