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Fastly, Inc.

Case Details

Class Period: February 15, 2024 - May 1, 2024
Date Filed: May 24, 2024
Case Number: 3:24-cv-03170
Jurisdiction: Northern District of California
icon-casetype Case Type: Securities Case
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Case Summary

Fastly operates an edge cloud platform for processing, serving, and securing customer’s applications. The edge cloud is a category of Infrastructure-as-a-Service that purportedly enables developers to build, secure, and deliver digital experiences. Fastly’s platform includes a Content Delivery Network (“CDN”), or a geographically distributed network of proxy servers and their data centers. Content owners such as media companies and e-commerce vendors pay CDN operators to deliver their content to their end users. Certain companies have adopted a “Multi-CDN” framework which combines multiple CDNs from various providers into one large global network.

In 2023, a “consolidation trend” emerged in the CDN industry, in which several prominent Multi-CDN companies reduced the number of CDN vendors they had previously managed in an effort to simplify their operations and increase efficiency, opting instead to manage fewer CDN vendors. Facing reduced competition, Fastly was able to materially increase its market share and drive favorable sequential growth.

On February 14, 2024, Fastly issued a press release providing full year (“FY”) 2024 revenue guidance in a range of $580 million to $590 million. In that same press release, Fastly’s Chief Executive Officer Defendant Todd Nightingale (“Nightingale”) was quoted as stating, “[t]his quarter demonstrated the progress we’ve made in operational and financial rigor resulting in strong gross margins and non-GAAP net income,” and “[o]ur go-to-market, packaging and channel efforts through 2023 delivered an inflection in our customer acquisition as we closed out the year. This positions us well for 2024, driving our mission to make every user experience fast, safe, and engaging.”

Throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) contrary to its representations to investors, Fastly was in fact experiencing a significant deceleration in growth among its largest customers and was losing the increased market share it had gained as a result of the 2023 CDN consolidation trend; (ii) the foregoing issues were likely to have a material negative impact on the Company’s revenue growth; (iii) accordingly, the Company was unlikely to meet its own previously issued revenue guidance for FY 2024; (iv) as a result, the Company’s financial position and/or prospects were overstated; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times.

On May 1, 2024, Fastly announced its first quarter (“Q1”) 2024 financial results. Despite the Defendants’ positive statements just three months earlier about Fastly’s performance and near-term business prospects, the Company reported revenue of only $133.52 million, missing consensus estimates by $0.35 million. The Company also lowered its FY 2024 revenue guidance to a range of $555 million to $565 million, significantly below its previously issued FY 2024 revenue guidance of $580 million to $590 million, and likewise below consensus estimates of $584.62 million for the same period.

That same day, Fastly held a conference call with investors and analysts to discuss the Company’s Q1 2024 results (the “Q1 2024 Earnings Call”). In explaining the Company’s disappointing revised FY 2024 outlook, Defendant Nightingale stated that “[t]he 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%[,]” and that the Company saw “significant volatility” in the Multi-CDN strategy run by many of Fastly’s top 10 accounts. Further, Fastly’s Chief Financial Officer Defendant Ronald Kisling stated that the Company is “facing a challenging environment of revenue declines in our largest customers, overshadowing the impact of new customer acquisition and product pipeline[,]” and that the Company would not benefit in 2024 from the favorable impact of the early 2023 CDN consolidation that drove favorable sequential growth in the prior year same period.

Then, on May 2, 2024, Bank of America downgraded Fastly stock from a “Buy” rating to an “Underperform” rating and cut its price target on the stock from $18 per share to a mere $8 per share, noting that “[d]ecelerating growth in Fastly’s largest customers, share loss in delivery, and limited visibility in 2H cause us to question a rebound in 2024,” and that “[w]hile we continue to like Fastly’s positioning in the edge compute market, we see it as a 2025 opportunity instead of a near-term growth driver.”

Following these developments, Fastly’s stock price fell $4.14 per share, or 32.02%, to close at $8.79 per share on May 2, 2024.

As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.

Documents
Complaint