Shares of Fastly Inc. were falling 4% in premarket trading Tuesday after RBC Capital Markets turned bearish on the cloud-computing stock. “Fastly scores low on our five-factor recession framework, therefore we believe it will see a disproportionate impact in the downturn, owing to its consumption-based model, high startup exposure, lack of profitability, and the pricing sensitive nature of CDN [content-delivery network],” RBC’s Rishi Jaluria wrote, in downgrading Fastly shares to underperform from sector perform. Additionally, he deems Fastly’s execution “mixed” in the “post-COVID” period and noted that the company is in the midst of a CEO transition, which could prolong the time it takes for Fastly to execute a turnaround. “We believe this makes it harder for Fastly to catch up with Cloudflare on the edge computing opportunity,” he wrote. “In our view, Fastly should focus on a turnaround CEO who can also get Fastly back to its developer-focused roots and incorporate a product-led growth strategy.” He further suggested that the company needs to “be more acquisitive to become a more serious contender in security,” though it could be challenging for Fastly to use its stock to fund deals. “We believe this, coupled with a lack of cash on the balance sheet and profitability, makes it harder for Fastly to capitalize on the security opportunity and significantly diversify its business,” Jaluria said. The shares have dropped 38% over the past three months as the S&P 500 has lost 14%.
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