Morgan Stanley Set Fastly’s Target Price at $43, Says 2022 a Year of Transition

Morgan Stanley set their base stock price forecast on Fastly at $43 and said they see 2022 as a transition year for the cloud services company where more progress across multiple fronts is needed to increase their confidence in the ability to realize potential.

Fastly expects to grow revenue from $291 million in 2020 to $1 billion by 2025, which represents a compound annual growth rate of 30%. Such a growth rate is very aggressive. Fastly’s stock has continued to consolidate, despite the company’s ambitious $1 billion revenue roadmap by 2025. The share price of the company has also plummeted.

Fastly shares slumped nearly 60% in 2021. However, the stock rose 1.55% to $36 in pre-market trading on Monday.

“A software-driven approach to edge networking is translating into share gains in content delivery networking (CDN) while creating a platform to enter faster-growing markets. We see 2022 as a transition year as Fastly invests to realize the opportunity. After being an early beneficiary of the shift to remote work and the spike in consumption of online services during the pandemic, growth has come under pressure in 2021. Tougher YoY compares, churn of a large customer and a brief, but impactful, network outage are the main contributors to the top-line slow down,” noted Sanjit Singh, equity analyst at Morgan Stanley.

Morgan Stanley gave the stock price forecast of $148 under the bull scenario and $6 under the worst-case scenario. Other equity analysts also updated their stock price outlook. RBC raised the target price to $50 from $36. Citigroup lifted the price target to $40 from $33. D.A. Davidson upped the target price to $53. Piper Sandler increased the target price to $51 from $32.

Five analysts who offered stock ratings for Fastly in the last three months forecast the average price in 12 months of $47.50 with a high forecast of $55.00 and a low forecast of $42.00.

The average price target represents a 33.99% change from the last price of $35.45. Of those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

“Fastly’s software-driven approach to solving complex compute and networking problems has garnered the company a strong reputation for performance and security that has translated into material share gains in the $10 billion content delivery networking (CDN) market today, which will help the company sustain 20% revenue growth,” Morgan Stanley’s Singh added.

“However, FY22 will likely be a transition year as Fastly rebounds from a post-pandemic slowdown and invests to take share in its core markets. With the stock currently trading at ~0.75x EV/Gross Profit/Growth, a discount vs. peers at 0.83x, we think shares are fairly priced given the uncertainty in new markets/products.”

Technical analysis suggests it is a good time to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

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