Last week, all three major U.S. indices took a hit, though the tech-heavy Nasdaq Composite fell further than the S&P 500 or the Dow Jones Industrial Average. Unfortunately, this sell-off added to the pain of previous losses for some shareholders, myself included. For instance, Fastly (NYSE:FSLY) stock is now down about 70% from its all-time high.
However, dips in the market can be buying opportunities when we are talking about a good company, especially if the company in question still has strong prospects for future growth. And I think Fastly checks that box. In fact, I think this tech stock could grow threefold in the next five years.
Here's why.
The promise of edge computing
Fastly makes the internet faster. Its edge cloud platform accelerates and secures the delivery of content (e.g. applications, streaming media), ensuring a good experience for end-users like you and me. To do this, Fastly's global network — composed of servers strategically positioned near internet exchange points — sits between its customers' data centers and their end users' devices, effectively reducing the distance data must travel to reach its destination.
Why does this matter? Latency makes for a poor user experience. If a website or mobile app loads too slowly, people tend to abandon the service. This truth is made more pressing by digital transformation. As more companies engage with consumers through the internet, providing a high-quality digital experience becomes more critical.
To that end, Fastly puts its market opportunity at $36.2 billion by 2022.
Competitive position
Fastly built its edge cloud for the modern internet. Its network is composed of fewer, more powerful servers than traditional content delivery networks like Akamai. That means its edge cloud can handle more requests more quickly, so fewer requests are routed back to the client's data center. In turn, that translates into better performance and cost savings.
Fastly also benefits from its cloud-agnostic position, meaning its platform is not associated with or biased toward any public cloud, like Microsoft Azure or Amazon Web Services (AWS). Fastly works with all of them, intelligently routing traffic across different infrastructures. This means its clients can work with their preferred cloud vendors while monitoring all networks from a single platform.
Financial performance
During the second quarter of 2021, an outage in Fastly's network caused a significant disruption for many websites, leading the company to post lackluster financial results. Revenue grew just 14%, and management lowered guidance for the third quarter. Even worse, CEO Joshua Bixby noted that a large customer had not yet returned to the platform as of the Q2 earnings call.
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