Fastly dips as Morgan Stanley downgrades, citing 'challenging' environment in second half
Leon Neal

Fastly (NYSE:FSLY) shares fell on Monday as investment firm Morgan Stanley downgraded the cloud computing company, highlighting the fact there is "poorer visibility" going into the second half and several other issues.
Analyst Sanjit Singh lowered his rating to underweight from equal weight and slashed the price target to $12 from $18. The analyst highlighted concerns about a "challenging" spending environment, the upcoming change to the company's CEO and a consumption model that is likely to show changes in demand sooner than traditional software-as-a-service models. These changes have led Singh to lower revenue estimates for 2022 and 2023 by 1.5% and 7.7%, respectively.
"...[W]e think risk/reward is relatively less attractive versus our coverage universe where we favor names that are better secularly positioned and effectively executing against their market opportunity such as MongoDB and Datadog," Singh wrote in a note to clients.
Fastly (FSLY) shares fell nearly 6% to $12.70 in premarket trading, while MongoDB (MDB) and Datadog (DDOG) fell 1% and 1.5%, respectively.
Looking deeper, Singh noted that markets such as e-commerce, software and digital publishing could see slower demand if the economy weakens, thus leading to less traffic on Fastly's (FSLY) networks, as it looks to have "significant" exposure to tech startups.
There are also concerns about increased competition, with Google (GOOG) (GOOGL) recently unveiling its media content delivery network offering and protection for web applications called Cloud Armor. Akamai's (AKAM) recent purchase of Linode could also give that company a "unique platform," Singh noted.
Fastly (FSLY) is also in a position to change its CEO, which could add the "potential for organization disruption and mis-execution," the analyst pointed out, even though the company's founder and chief architect, Artur Bergman, is still at the company.
Lastly, there are also concerns that if the economy weakens, it's likely to hit Fastly (FSLY) more as consumption models "have two distinct disadvantages during economic downturns," including being less predictable than subscriptions and less resilient.
In May, Fastly (FSLY) announced it had signed a deal to repurchase ~$235M principal amount of its no-interest convertible senior notes due 2026.
Analysts have been lukewarm on Fastly (FSLY). It had an average rating of HOLD from Wall Street analysts, while Seeking Alpha authors are less positive on it and still rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates FSLY a SELL.