By Senad Karaahmetovic
Morgan Stanley analyst Sanjit Singh downgraded Fastly (NYSE:FSLY) to Underweight from Equal Weight with a $12 per share price target (down from $18).
“With growing evidence of a slowdown in the software spend environment, we are narrowing our focus in our coverage universe and positioning more cautious on companies operating consumption pricing models who have shown a mixed track record of execution,” Singh said in a client note.
The analyst sees “too much uncertainty” heading into H2 while execution risks are also seen as “elevated.”
Singh lists 5 key reasons why risk/reward for Fastly shares is “unfavorable.”
- Signs of weaker demand environment;
- Potential for intensifying competition;
- Potential for organizational disruption;
- Consumption business model will more quickly reflect a slowing demand environment; and
- Below average gross margins (below 60%) and a long path to achieving operating profitability and positive cash flow.
Fastly shares are down roughly 6% in response to Morgan Stanley's actions.