Executive Summary / Key Takeaways

• Accelerating Momentum and Profitability: Fastly is demonstrating a significant turnaround, marked by accelerating revenue growth (15% YoY in Q3 2025), record operating income, and positive free cash flow, driven by disciplined execution and strategic initiatives. The company has raised its full-year 2025 guidance for revenue, profitability, and free cash flow.
• Platform Strategy and Cross-Sell Success: A unified edge cloud platform, emphasizing security, compute, and observability, is catalyzing strong cross-sell and upsell motions, including a major multi-product win with a top 10 strategic account in Q3 2025. This strategy is also diversifying revenue away from top customer concentration.
• Technological Edge in AI and Security: Fastly's proprietary edge technology, including AI Accelerator for LLM applications and advanced Next-Gen WAF with deception capabilities, provides tangible performance and cost benefits, strengthening its competitive moat in critical, high-growth areas.
• Improving Financial Health and Outlook: With $342.9 million in cash and equivalents, positive cash flow from operations, and a refinanced debt structure, Fastly possesses adequate liquidity. Management's rigorous budgeting and focus on ROI are expected to drive sustainable, profitable growth, with full-year 2025 non-GAAP operating profit projected between $9 million and $13 million.
• Competitive Positioning and Market Opportunity: While operating in a fragmented and competitive market against larger rivals like Akamai Technologies and Cloudflare , Fastly's developer-centric platform and specialized edge solutions allow it to gain market share, particularly as the pricing environment stabilizes and competitive displacements occur.

The Edge Cloud Imperative: Fastly's Strategic Foundation

Fastly, Inc. is carving out a critical niche in the digital infrastructure landscape with its edge cloud platform, designed to process, serve, and secure customer applications as close to their end-users as possible. This foundational approach addresses the escalating demand for high-quality digital experiences, where milliseconds can dictate user engagement and business success. Fastly's platform represents a convergence of traditional Content Delivery Network (CDN) capabilities with advanced functionalities like Application Delivery Controllers (ADC), Web Application Firewalls (WAF), Bot Detection, Distributed Denial of Service (DDoS) protection, and Observability solutions. The company's mission is to make the Internet a better place where all experiences are fast, safe, and engaging, positioning itself as a vital partner for both established enterprises undergoing digital transformation and emerging, digitally native companies.

Fastly's overarching strategy is built on programmability, agile software development, granular control, and real-time visibility, enabling developers to deploy code in a serverless environment and push application logic to the edge. This focus on developer empowerment and performance differentiates Fastly in a highly competitive market. The company's historical journey, marked by its founding in 2011 and significant debt management activities in 2021-2024, has culminated in a strategic pivot towards revenue diversification and enhanced operational rigor. This includes a conscious effort to reduce reliance on a few large customers and to expand its product portfolio, particularly in the high-growth security and compute segments.

Technological Leadership: The Core of Fastly's Moat

Fastly's competitive advantage is deeply rooted in its proprietary edge cloud technology. The platform's architecture is built for a software-defined future, offering unparalleled programmability through tools like the Varnish Configuration Language (VCL). This allows customers to exert granular control over their content delivery and application logic, enabling highly customized and dynamic digital experiences. The tangible benefits are clear: faster loading websites, reduced shopping cart abandonment, and instant access to up-to-date information for critical applications.

Recent innovations further solidify Fastly's technological moat. The AI Accelerator, launched in Q4 2024, is a semantic caching solution specifically designed to address the critical performance and cost challenges associated with Large Language Model (LLM) and generative AI applications. By employing semantic caching on Fastly's edge network, this technology can deliver up to a 9x faster response time, while also offering substantial cost savings and contributing to customers' sustainability efforts. It supports leading AI platforms such as ChatGPT, Google Gemini, and Microsoft Azure Foundry. In Q3 2025, Fastly introduced API discovery, a crucial first step in its comprehensive API resiliency strategy, helping customers continuously identify and protect their APIs. The company also launched industry-first deception capabilities in its Next-Gen WAF, designed to actively mislead attackers and bots, disrupting their ability to adapt and giving security teams a decisive advantage. Furthermore, AI integration with the Fastly MCP server is making it easier for customers to understand and manage their Fastly services.

These technological advancements are not merely features; they are strategic investments that enhance Fastly's competitive positioning. They enable higher Average Selling Prices (ASPs) for specialized services, contribute to lower operational costs for customers, and ultimately drive better margins for Fastly by offering differentiated, high-value solutions. The Object Storage solution, unveiled in Q4 2024, allows direct access to customer data at the edge with zero egress fees, directly reducing origin costs and improving performance. This continuous R&D and product velocity are critical for Fastly to maintain its leadership in a rapidly evolving market and capture new growth opportunities.

Competitive Dynamics and Strategic Positioning

The market for cloud computing platforms, particularly enterprise-grade products, is intensely competitive and fragmented. Fastly faces formidable direct competition from established players such as Akamai Technologies (AKAM), Cloudflare (NET), Amazon Web Services (AMZN), and Microsoft Azure (MSFT). These rivals often boast greater name recognition, longer operating histories, more established customer relationships, and significantly larger marketing budgets and resources.

Fastly competes on several key factors, including its platform's functionality, scalability, performance, ease of use, integration, programmability, reliability, and security. Its global network coverage and ability to support modern application development processes are also crucial differentiators. While larger competitors like Akamai offer extensive global networks and established enterprise relationships, Fastly's emphasis on agility, developer-centric tools, and customizable, high-performance edge solutions provides a distinct advantage in scenarios requiring rapid deployment and innovation. Cloudflare, with its accessible and often cost-effective platform, appeals to a broader audience, but Fastly's specialized features cater to more complex enterprise needs, particularly in media streaming and financial services.

The company's strategic response to this competitive landscape involves a multi-pronged approach. Under the leadership of Kip Compton (CEO) and Scott Lovett (President, Go-To-Market), Fastly is executing a go-to-market transformation focused on new customer acquisition, particularly in strategic verticals where performance and security are paramount. This includes targeting digitally native organizations within the Fortune 1000 that may find incumbents slow to evolve. Fastly is also actively pursuing cross-sell and upsell opportunities within its existing customer base, with almost 50% of customers now using two or more products, generating over 75% of its revenue. The pricing environment, which saw declines in the low 20s in 2024, is now moderating to the "favorable end of our typical high teens year-over-year declines," partly due to industry consolidation, including the exit of players like Edgio (EGIO). This stabilization is expected to be a tailwind for Fastly.

Financial Performance and Operational Discipline

Fastly's recent financial performance underscores its ongoing transformation and disciplined execution. For the third quarter of 2025, Fastly reported record revenue of $158.2 million, a 15% increase year-over-year, exceeding the high end of its guidance. This momentum contributed to a nine-month revenue total of $451.4 million, up 12% from the prior year. Approximately 96% of Fastly's revenue is derived from platform usage, highlighting the consumption-based nature of its business.

Segment-wise, Network Services revenue grew 11% year-over-year to $118.8 million in Q3 2025, driven by increased usage from existing customers and healthy traffic levels. Security revenue reached a record $34.0 million, demonstrating robust 30% year-over-year growth and now comprising a record 21% of total revenue. The "Other" segment, primarily driven by Compute solutions, also showed strong growth, increasing 51% year-over-year to $5.4 million. This surge is attributed to the expansion of Fastly's security portfolio and successful cross-sell initiatives.

Profitability metrics are showing significant improvement. Fastly's Q3 2025 gross margin was 62.8%, a substantial 380 basis point sequential improvement, driven by revenue growth outpacing cost increases and enhanced network efficiency. Excluding a nonrecurring cost of revenue tailwind, the gross margin would still have been approximately 62%. The company achieved a record operating income of $11.6 million in Q3 2025, significantly outperforming guidance, with operating expenses increasing at a slower rate (10% year-over-year) than revenue (15% year-over-year). Net profit for the quarter was $11.1 million, or $0.07 per diluted share, a notable improvement from a net profit of $3.8 million in Q3 2024. Adjusted EBITDA for Q3 2025 was $25.7 million.

Fastly's customer metrics reflect a healthier, more diversified base. The trailing 12-month net retention rate (LTM NRR) improved to 106% in Q3 2025, up from 104% in the prior quarter. The concentration of revenue from its top 10 customers has decreased to 32% in Q3 2025, down from 40% at the end of 2023, while revenue from customers outside the top 10 grew 17% year-over-year in Q2 2025. Remaining Performance Obligations (RPO) stood at $268 million, growing 16% year-over-year, indicating increasing customer commitments.

From a liquidity standpoint, Fastly is well-positioned. As of September 30, 2025, the company held $342.9 million in cash, cash equivalents, and marketable securities. Cash flow from operations was positive $28.9 million in Q3 2025, contributing to a record free cash flow of $18.1 million for the quarter. The company successfully refinanced a portion of its 2026 convertible notes in Q4 2024 by issuing $150 million of 7.75% convertible notes due 2028, extending its debt maturity and mitigating liquidity concerns.

Outlook and Key Risks

Fastly's management has expressed optimism for the future, raising its full-year 2025 guidance. The company now expects revenue in the range of $610 million to $614 million, representing 13% annual growth at the midpoint. Gross margins are anticipated to be between 60% and 61%. Non-GAAP operating profit is projected to be between $9 million and $13 million, reflecting a 2% operating margin at the midpoint, a significant improvement from a 4% operating loss margin in 2024. Free cash flow is guided to be between $25 million and $35 million, a substantial improvement from negative $36 million in 2024. Cash capital expenditures are expected to be in the range of 10% to 11% of revenue for the full year.

This positive outlook is predicated on several key assumptions: continued success of the go-to-market transformation, sustained cross-sell and upsell momentum, an improving pricing environment, and ongoing network efficiency gains. The company has also incorporated all ByteDance (TikTok) revenue into its Q4 guidance, perceiving the risk of business loss due to U.S. policy actions as less likely than in prior periods.

However, investors should be mindful of several risks. Fastly's platform performance is critical, and any defects, interruptions, or security breaches could harm its business and customer relationships. While customer concentration has decreased, the top 10 customers still represent a significant portion of revenue, making the company susceptible to usage reductions from these accounts. The rapidly evolving regulatory landscape for AI and data localization laws could introduce compliance costs and operational complexities. Fastly also faces challenges in accurately forecasting revenue due to the usage-based nature of its business and the diversity of its customer base. The company has identified a material weakness in its internal control over financial reporting related to its revenue process, which is currently undergoing remediation.

Conclusion

Fastly is undergoing a compelling transformation, shifting from a period of significant operating losses and customer concentration to one of accelerating growth and improving profitability. The company's core investment thesis is rooted in its highly programmable, performance-driven edge cloud platform, which is increasingly differentiated by its advanced security and AI-driven compute capabilities. Strategic leadership changes, a refocused go-to-market strategy emphasizing cross-sell and new enterprise customer acquisition, and a disciplined approach to cost management are translating into tangible financial improvements, including record operating income and positive free cash flow.

While the competitive landscape remains intense, Fastly's technological leadership in areas like AI Accelerator and Next-Gen WAF, coupled with a stabilizing pricing environment and opportunities arising from competitor exits, positions it to gain market share. The company's raised guidance for 2025 reflects growing confidence in its ability to execute and deliver sustainable, profitable growth. Investors should monitor Fastly's continued progress in diversifying its revenue base, the successful remediation of its internal control weaknesses, and its ability to capitalize on emerging opportunities in edge computing and AI, which are critical for sustaining its upward trajectory.