Why Fastly Stock Is Plummeting Today

Fastly (NYSE: FSLY) stock is sinking rapidly in Thursday's trading. The edge-computing specialist's share price was down 22.1% as of noon ET despite the S&P 500 index being up 0.5% and the Nasdaq Composite being up 0.8% at the same time. The stock had been down as much as 25.9% earlier in the session.

Fastly reported its fourth-quarter results yesterday, posting sales that beat the market's expectations and earnings that fell short of Wall Street's target. But while the company posted a revenue beat in Q4, its forward guidance has investors feeling bearish.

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Fastly stock sinks on Q4 earnings miss

Fastly recorded a non-GAAP (adjusted) loss per share of $0.03 on revenue of $140.57 million in the fourth quarter. For comparison, the average Wall Street estimate had called for the business to post a break-even quarter on sales of $138.63 million.

Fastly's revenue increased 2% year over year in Q4 -- marking an all-time high for the period. The company said that it was continuing to make progress with its customer diversification efforts, and its top 10 largest customers accounted for 32% in the quarter -- down from 33% in Q3 and 40% in Q4 2023. The company also closed out the quarter with 596 enterprise customers, representing a 3% year-over-year increase.

But despite movement on the diversification front and better-than-expected sales in the period, margins missed expectations. The shortfall may be raising concerns about the company's competitive positioning and pricing power.

What comes next for Fastly?

For the first quarter, Fastly is guiding for a loss per share of $0.09 to $0.05 on sales of $136 million to $140 million. Meanwhile, the average analyst estimate had called for the business to post a loss per share of $0.01 on sales of $137.14 million.

Looking ahead to the full-year period, Fastly is guiding for sales to come in between $575 million and $585 million. If the business hits the midpoint of that target, it would mean delivering annual sales growth of roughly 6.7%. Meanwhile, the company is forecasting an adjusted loss per share between $0.15 and $0.09. For comparison, the company posted an adjusted loss per share of $0.12 last year.

With sales growth projected to be in the mid-single-digit range and expectations for a loss that's roughly in line with last year's, investors are losing confidence in Fastly's growth story. The edge-computing specialist will likely need to deliver better margins in conjunction with reaccelerated sales growth if it hopes to shift the sentiment surrounding its stock.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fastly. The Motley Fool has a disclosure policy.