Fastly Officers Duped Investors on 2024 Revenue Guidance, Alleges Class Action
Despite representing in a Feb. 14 news release that it was positioned well financially for fiscal 2024, defendants Fastly and its CEO Todd Nightingale misled investors even as the company was “experiencing a significant deceleration in growth,” a securities fraud class action alleged Friday (docket 3:24-cv-03170) in U.S. District Court for Northern California.
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Fastly benefitted from a consolidation trend in the content delivery network (CDN) industry in 2023 and “was able to materially increase its market share and drive favorable sequential growth," said the complaint. Shareholder Ken Kula filed the complaint on behalf of a class of investors that bought Fastly stock from Feb. 15 to May 1.
Fastly’s Feb. 14 news release gave 2024 revenue guidance of $580 million-$590 million, with Nightingale citing progress the company made in “operational and financial rigor” that resulted in "strong gross margins" and non-generally accepted accounting principles net income. In fact, the complaint alleged, the company was 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."
In addition, management didn’t disclose that "the foregoing issues were likely to have a material negative impact" on revenue growth; Fastly was unlikely to meet its previously issued revenue guidance for FY 2024; and its financial position and/or prospects “were overstated," the complaint said.
In its May 1 financial results, Fastly reported revenue of $133.5 million, missing financial analysts’ consensus estimates by $350,000, and it dialed back full-year guidance to $555 million-$565 million, said the complaint. On an analysts’ call that day, Nightingale blamed lower results and forecasts on a reduction of revenue from “a small number of our largest customers” and volatility in the “Multi-CDN strategy” run by many of the company’s top 10 accounts.
Co-defendant and Chief Financial Officer Ron Kisling referenced on the call a “challenging environment of revenue declines” among the largest customers, “overshadowing the impact of new customer acquisition and product pipeline.” Fastly would not benefit from the favorite impact of the early 2023 CDN consolidation that drove favorable sequential growth in the year-ago quarter, Kisling said.
Bank of America downgraded Fastly stock from “buy” to “underperform” May 2, and cut the price target from $18 per share to $8 per share, said the complaint. The stock price fell $4.14 that day, closing at $8.79 per share, it added. As a result of the defendants' “wrongful acts and omissions,” Kula and class members have suffered “significant losses and damages,” it said.
During the class period, Nightingale and Kisling had the “motive and opportunity to commit fraud,” the complaint alleged. The officers had knowledge of the misleading nature of their statements or “acted in reckless disregard of the true information known to them at the time,” it said. The two executives “sold a substantial amount of Fastly stock” during the class period, it said: Nightingale sold 99,348 of his shares of Fastly stock for nearly $1.5 million, and Kisling sold 47,852 shares for $674,400, ahead of the company’s announcement of “disappointing Q1 2024 financial results and revised FY 2024 revenue guidance,” the complaint said.
Kula alleges the defendants violated the Exchange Act and seeks damages for himself and the class. He also requests awards of pre- and post-judgment interest, plus reasonable attorneys’ fees and legal costs.