Business Overview and History
Fastly, Inc. (NYSE:FSLY) is a leading global edge cloud platform provider that empowers developers, enterprises, and governments to build fast, secure, and engaging digital experiences. With a focus on innovation and customer-centric solutions, Fastly has established itself as a key player in the rapidly evolving edge computing landscape.
Fastly was founded in 2011 with the mission of making the internet a better place by delivering fast, safe, and engaging digital experiences. The company's origins trace back to the challenges faced by its founders in their previous roles, where they recognized the need for a more efficient and reliable content delivery solution.
Headquartered in San Francisco, California, Fastly built an edge cloud platform designed to process, serve, and secure its customers' applications as close to their end users as possible. The platform's programmable nature and support for agile software development give developers a high degree of flexibility with granular control and real-time visibility.
In its early years, Fastly focused on attracting a diverse customer base, including large enterprises undergoing digital transformation and emerging companies across various industries. The company's ability to dynamically manage content in real-time enabled its customers to provide instant access to up-to-date information and low-latency experiences, particularly benefiting organizations in digital publishing and ecommerce.
However, Fastly has faced several challenges throughout its history. In 2021, the company experienced a global platform outage that increased its public profile and led to more frequent regulatory scrutiny. Additionally, Fastly has had to navigate complex and evolving data localization and cross-border data transfer laws in various jurisdictions, creating uncertainty for its globally operating customers. The company has also contended with significant cyber-attacks, including distributed denial-of-service (DDoS) attacks that have tested its infrastructure's limits.
Despite these obstacles, Fastly has continued to innovate and expand its edge cloud platform capabilities, adding security, compute, and observability solutions. The company has also focused on diversifying its customer base and revenue streams to reduce concentration risk. As of the end of 2024, Fastly served 3,061 customers, including 596 enterprise customers that accounted for 93% of its total revenue.
Over the years, Fastly has continuously expanded its platform to address the evolving needs of its customers. In 2019, the company made a strategic move by acquiring Signal Sciences, a leading web application security provider. This acquisition allowed Fastly to bolster its security offerings and provide a more comprehensive suite of edge computing solutions.
Financial Performance and Metrics
Fastly's financial performance has shown both progress and challenges in recent years. In 2024, the company reported annual revenue of $544 million, representing a 7% year-over-year growth. However, its net income for the year was negative $158.1 million, with an annual operating cash flow of $16 million and free cash flow of negative $36 million.
The company's revenue growth has been impacted by headwinds from a few of its largest customers, which accounted for 32% of total revenue in the fourth quarter of 2024, down from 40% in the year-ago quarter. Fastly's trailing 12-month net retention rate stood at 102%, reflecting the challenges faced in retaining and expanding its customer base.
Fastly operates in three main product segments: Network Services, Security, and Other. For the three months ended September 30, 2024, Network Services revenue was $107.43 million, making up 78% of total revenue and showing a 5% year-over-year increase. Security revenue was $26.18 million, a 12% increase compared to the prior year period, driven primarily by growth in Next-Gen WAF revenue. The Other segment, which includes Compute and Observability solutions, generated $3.59 million in revenue, an 85% increase year-over-year.
Quarterly Highlights and Guidance
In the fourth quarter of 2024, Fastly reported record revenue of $140.6 million, which exceeded the guidance range of $136 million to $140 million and represented a 2% year-over-year increase. The company's operating loss for the quarter was $4.2 million, within the guided range of $1 million to $5 million. The revenue increase was driven by better-than-expected seasonal traffic and share gains from customers ramping in Q4. The net income for the quarter was negative $32.9 million, with operating cash flow of $5.2 million and free cash flow of $7.9 million.
For the first quarter of 2025, Fastly expects revenue of $136 million to $140 million, representing 3% annual growth at the midpoint. For the full year 2025, Fastly is forecasting revenue in the range of $575 million to $585 million, reflecting an annual growth of 7% at the midpoint. The company expects its non-GAAP operating loss to be in the range of $15 million to $9 million, an improvement of approximately 56% in dollar terms over 2024's operating loss margin of 5%. Fastly anticipates 2025 gross margins to be approximately flat, plus or minus 50 basis points, relative to 2024. The company also projects 2025 free cash flow to be in the range of negative $20 million to negative $10 million, compared to negative $36 million in 2024.
Liquidity
As of September 30, 2024, Fastly reported cash and cash equivalents of $217.5 million. The company maintains a strong liquidity position with a debt-to-equity ratio of 0.4192, a current ratio of 4.21, and a quick ratio of 4.21. Fastly also has access to a $60 million credit facility, which includes a $10 million sublimit for letters of credit and a $20 million swingline subfacility, providing additional financial flexibility.
Geographic Performance
Fastly's revenue remains primarily concentrated in the United States, which accounted for 76% and 75% of total revenue for the three and nine months ended September 30, 2024, respectively. Aside from the United States, no other single country accounted for more than 10% of revenue during these periods, highlighting the company's potential for international expansion.
Competitive Landscape and Differentiators
Fastly operates in a highly competitive market, with players such as Akamai, Cloudflare, and Amazon Web Services vying for market share. The company's key differentiators include its focus on innovation, strong security offerings, and its ability to deliver fast and reliable digital experiences at the edge.
Fastly's software-driven edge cloud platform provides a suite of services, including content delivery, security, compute, and observability. The company's ongoing investments in technology and product development have enabled it to expand its feature set and stay ahead of the competition.
Risks and Challenges
Fastly faces several risks and challenges that could impact its future performance. The company's revenue concentration in a few large customers poses a risk, as the loss or reduction in usage by these customers could significantly affect its financial results. However, Fastly has been making progress in diversifying its customer base, with its 10 largest customers generating 35% of total revenue in the trailing 12 months, down from 37% in the prior year period.
Additionally, Fastly operates in a rapidly evolving industry, where technological advancements and the emergence of new competitors could disrupt its business model. The company's ability to successfully navigate these challenges and maintain its competitive edge will be crucial for its long-term success.
Conclusion
Fastly's journey in the edge computing space has been marked by both successes and challenges. While the company has demonstrated its ability to innovate and provide comprehensive solutions to its customers, it must continue to adapt to the changing market dynamics and address the risks that could hinder its growth.
As Fastly navigates the future, its focus on diversifying its customer base, expanding its product portfolio, and driving operational efficiency will be critical in positioning the company for long-term success. The company's guidance for 2025 suggests a continued focus on revenue growth and improving profitability, with anticipated improvements in operating loss margins and free cash flow.
Investors and industry observers will closely follow Fastly's progress as it aims to capitalize on the growing demand for edge computing solutions and solidify its place as a leader in the industry. The company's ability to execute on its strategy, particularly in expanding its Security and Compute offerings, while maintaining strong performance in its core Network Services segment, will be key factors in determining its future success.