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Fastly Stock Plunges 42% After Q1 Earnings: Time to Stay Cautious?
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Key Takeaways
Fastly shares fell nearly 42% since the early May Q1 report despite results beating expectations.
Network Services, its biggest segment, grew 11% y/y as pricing erosion stayed mid-single digits.
Security revenues jumped 47% y/y to 22% of sales, but higher 2026 capex may pressure cash flow.
Fastly, Inc. (FSLY - Free Report) investors have had a difficult run. Since the company released its first-quarter 2026 results in early May, the stock has fallen nearly 42%, even though the results were better than expected.
With this, the company’s shares have declined 21.7% over the past month. The decline is even more disappointing when compared with the broader market. Over the same time frame, FSLY has underperformed the industry’s decline of 3.9% and lagged the broader Zacks Computer and Technology sector and the S&P 500’s respective increases of 10.8% and 6%. Other technology players, including Zscaler, Inc. (ZS - Free Report) , Akamai Technologies, Inc. (AKAM - Free Report) and Cloudflare, Inc. (NET - Free Report) , have gained 16.2%, 78.3% and 1.3%, respectively.
Image Source: Zacks Investment Research
The sharp underperformance shows that investors are looking beyond Fastly’s headline numbers. The company reported record revenues, strong growth in security and improved adjusted profitability. However, the market remains worried about slower growth in its core business, rising infrastructure costs and tough competition.
What Is Hurting Fastly Stock?
The biggest concern is the slowdown in Fastly’s core Network Services business. This segment still contributes the majority of the company’s revenues, making its performance critical to overall growth. In the first quarter, Network Services revenues increased 11% year over year. While the growth was solid, it was lower than what investors typically expect from a high-growth technology company.
Management attributed some of the moderation to tough comparisons with a particularly strong fourth quarter, which benefited from holiday e-commerce traffic and gaming downloads. However, investors remain cautious about the long-term growth trajectory of the company’s legacy CDN business.
Pricing pressure is another challenge. Fastly noted that pricing erosion in Network Services remained in the mid-single-digit range. This is common across the CDN industry, where customers receive higher discounts as traffic volumes grow. While Fastly continues to add traffic and customers, pricing dynamics could continue limiting revenue acceleration.
At the same time, Fastly is investing heavily in infrastructure to support future growth opportunities tied to AI workloads, edge computing and security offerings. The company expects infrastructure capital expenditures to rise meaningfully in 2026. Although these investments may strengthen Fastly’s platform over time, they could pressure near-term free cash flow and margins.
Competition also remains intense. Fastly competes with larger and well-capitalized players across content delivery, cybersecurity and edge computing markets. Investors are closely watching whether Fastly can continue expanding its newer security and compute businesses quickly enough to offset slower growth in Network Services.
There Are Still Some Bright Spots for FSLY
Fastly’s security business remains the clearest positive. Security revenues jumped 47% year over year in the first quarter and now account for 22% of total revenues. The company is gaining traction beyond its core web application firewall with products such as Bot Management, DDoS protection and API Security.
AI-related demand could also support long-term growth. Fastly believes rising AI traffic, agentic AI workloads and bot-heavy internet activity will increase demand for edge security, API management and compute solutions. Its “Other” segment, which includes compute and observability, grew 67% year over year in the first quarter, though it remains a small part of the business.
Customer trends are also improving. Fastly’s last-12-month net retention rate rose to 113%, showing that existing customers are spending more on the platform. The company also continues to win recognition for its edge development platform, which supports the case that its technology remains competitive.
What Are Analysts Saying About FSLY?
Estimate revisions have been somewhat encouraging. The Zacks Consensus Estimate for current-year earnings has risen 11.5% over the past seven days to 26 cents per share, implying 123.1% growth from the year-ago reported figure. Meanwhile, the consensus estimate for next-year earnings has remained unchanged at 37 cents per share, suggesting analysts are maintaining a balanced view on Fastly’s longer-term growth prospects.
Image Source: Zacks Investment Research
Fastly’s Valuation Reflects Mixed Expectations
Even after the steep decline, Fastly’s valuation presents a mixed picture. FSLY trades at a forward 12-month price-to-sales (P/S) ratio of 3.84, slightly above the industry average of 3.68. However, it trades below ZS, AKAM and NET, which have P/S multiples of 6.41, 5.07 and 21.99, respectively.
Image Source: Zacks Investment Research
The discount to peers shows that investors remain cautious about Fastly’s growth outlook and execution risks. The company is still heavily dependent on its slower-growing Network Services business, while higher infrastructure spending and competition could weigh on margins and free cash flow.
Should Investors Avoid FSLY for Now?
Fastly delivered a solid first quarter, supported by strong growth in security revenues and improving profitability trends. The company is also seeing opportunities in AI-related workloads, edge computing and cybersecurity. However, the sharp decline in the stock shows that investors remain focused on the risks. Slower growth in the core Network Services segment, ongoing pricing pressure, higher infrastructure spending and tough competition could continue to limit near-term upside.
While Fastly’s long-term opportunities are meaningful, the risk-reward profile does not look compelling yet. Investors may want to stay on the sidelines until the company shows more consistent execution and stronger contribution from its newer growth businesses.
View the Zacks #1 Rank List
Image: Bigstock
Fastly Stock Plunges 42% After Q1 Earnings: Time to Stay Cautious?
Key Takeaways
Fastly, Inc. (FSLY - Free Report) investors have had a difficult run. Since the company released its first-quarter 2026 results in early May, the stock has fallen nearly 42%, even though the results were better than expected.
With this, the company’s shares have declined 21.7% over the past month. The decline is even more disappointing when compared with the broader market. Over the same time frame, FSLY has underperformed the industry’s decline of 3.9% and lagged the broader Zacks Computer and Technology sector and the S&P 500’s respective increases of 10.8% and 6%. Other technology players, including Zscaler, Inc. (ZS - Free Report) , Akamai Technologies, Inc. (AKAM - Free Report) and Cloudflare, Inc. (NET - Free Report) , have gained 16.2%, 78.3% and 1.3%, respectively.
Image Source: Zacks Investment Research
The sharp underperformance shows that investors are looking beyond Fastly’s headline numbers. The company reported record revenues, strong growth in security and improved adjusted profitability. However, the market remains worried about slower growth in its core business, rising infrastructure costs and tough competition.
What Is Hurting Fastly Stock?
The biggest concern is the slowdown in Fastly’s core Network Services business. This segment still contributes the majority of the company’s revenues, making its performance critical to overall growth. In the first quarter, Network Services revenues increased 11% year over year. While the growth was solid, it was lower than what investors typically expect from a high-growth technology company.
Management attributed some of the moderation to tough comparisons with a particularly strong fourth quarter, which benefited from holiday e-commerce traffic and gaming downloads. However, investors remain cautious about the long-term growth trajectory of the company’s legacy CDN business.
Pricing pressure is another challenge. Fastly noted that pricing erosion in Network Services remained in the mid-single-digit range. This is common across the CDN industry, where customers receive higher discounts as traffic volumes grow. While Fastly continues to add traffic and customers, pricing dynamics could continue limiting revenue acceleration.
At the same time, Fastly is investing heavily in infrastructure to support future growth opportunities tied to AI workloads, edge computing and security offerings. The company expects infrastructure capital expenditures to rise meaningfully in 2026. Although these investments may strengthen Fastly’s platform over time, they could pressure near-term free cash flow and margins.
Competition also remains intense. Fastly competes with larger and well-capitalized players across content delivery, cybersecurity and edge computing markets. Investors are closely watching whether Fastly can continue expanding its newer security and compute businesses quickly enough to offset slower growth in Network Services.
There Are Still Some Bright Spots for FSLY
Fastly’s security business remains the clearest positive. Security revenues jumped 47% year over year in the first quarter and now account for 22% of total revenues. The company is gaining traction beyond its core web application firewall with products such as Bot Management, DDoS protection and API Security.
AI-related demand could also support long-term growth. Fastly believes rising AI traffic, agentic AI workloads and bot-heavy internet activity will increase demand for edge security, API management and compute solutions. Its “Other” segment, which includes compute and observability, grew 67% year over year in the first quarter, though it remains a small part of the business.
Customer trends are also improving. Fastly’s last-12-month net retention rate rose to 113%, showing that existing customers are spending more on the platform. The company also continues to win recognition for its edge development platform, which supports the case that its technology remains competitive.
What Are Analysts Saying About FSLY?
Estimate revisions have been somewhat encouraging. The Zacks Consensus Estimate for current-year earnings has risen 11.5% over the past seven days to 26 cents per share, implying 123.1% growth from the year-ago reported figure. Meanwhile, the consensus estimate for next-year earnings has remained unchanged at 37 cents per share, suggesting analysts are maintaining a balanced view on Fastly’s longer-term growth prospects.
Image Source: Zacks Investment Research
Fastly’s Valuation Reflects Mixed Expectations
Even after the steep decline, Fastly’s valuation presents a mixed picture. FSLY trades at a forward 12-month price-to-sales (P/S) ratio of 3.84, slightly above the industry average of 3.68. However, it trades below ZS, AKAM and NET, which have P/S multiples of 6.41, 5.07 and 21.99, respectively.
Image Source: Zacks Investment Research
The discount to peers shows that investors remain cautious about Fastly’s growth outlook and execution risks. The company is still heavily dependent on its slower-growing Network Services business, while higher infrastructure spending and competition could weigh on margins and free cash flow.
Should Investors Avoid FSLY for Now?
Fastly delivered a solid first quarter, supported by strong growth in security revenues and improving profitability trends. The company is also seeing opportunities in AI-related workloads, edge computing and cybersecurity. However, the sharp decline in the stock shows that investors remain focused on the risks. Slower growth in the core Network Services segment, ongoing pricing pressure, higher infrastructure spending and tough competition could continue to limit near-term upside.
While Fastly’s long-term opportunities are meaningful, the risk-reward profile does not look compelling yet. Investors may want to stay on the sidelines until the company shows more consistent execution and stronger contribution from its newer growth businesses.
Fastly currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.