11 Best Cloud Stocks to Buy According to Analysts

6. Fastly, Inc. (NYSE:FSLY)

Number of Hedge Fund Investors  in Q1 2024: 23

Analyst Average Share Price Target: $10.17

Upside: 37%

Fastly, Inc. (NYSE:FSLY) is a content delivery and application development focused cloud company. As is with other cloud stocks, central to its hypothesis is Fastly, Inc. (NYSE:FSLY)’s ability to grow its customer base, grow revenue, and retain customers. It has to consistently match Wall Street’s revenue growth expectations, and any misses are punished heavily, particularly in today’s high rate environment that has increased the risk premium. At the same time, Fastly, Inc. (NYSE:FSLY) also depends on the source of its traffic for its revenue. Certain countries lead to high value traffic, and if this source shifts, then Fastly, Inc. (NYSE:FSLY) experiences a growth slowdown. This led to a 31% share price drop in February when the firm’s $138 million in Q4 revenue sat at the lower end of its guidance as international traffic fluctuations impacted the top line. Fastly, Inc. (NYSE:FSLY)’s shares fell another 32% in May when its calendar year revenue growth guidance of 6% to 9% marked a significant drop over the earlier guidance of 15% to 17%.

Customer deals were at the heart of the revision, and during the earnings call, Fastly, Inc. (NYSE:FSLY)’s management shared:

There are a few factors that contributed to a challenging short-term environment. The biggest factor is a reduction of revenue from a small number of our largest customers. The first-quarter revenue from our top 10 customers dropped from 40% to 38%. Many of the top 10 accounts run a multi-vendor strategy. And we did see significant volatility here. And there are a few reasons for that. Firstly, historically, Fastly has gradually won greater traffic share in our largest accounts. But with the timing of rate and volume changes, we saw increased volatility this quarter. To be clear, we have not been removed from any of our largest customers and we remain in a strong strategic position, each of them long term.