Fastly reports revenue growth, net loss widens

Key points

• Fastly met its second-quarter 2024 revenue guidance of $132.4 million.
• The Company incurred significant net losses, with a GAAP net loss of $43.7 million.
• The increase in the number of customers was positive – the number of corporate customers increased by 24, reaching a total of 601.

Quick (VERBAL -16.96%)a global provider of content delivery networks (CDNs) and cloud services, reported its second-quarter results on August 7, 2024.

The company reported revenue of $132.4 million, up 8% from $122.8 million year over year, which hit the midpoint of its previous guidance. However, Fastly continued to struggle to manage costs, posting a GAAP net loss of $43.7 million, up significantly from a loss of $10.7 million reported in the second quarter of the previous year.

While the quarter saw revenue growth and increased customer acquisition, significant net losses and demand headwinds from key customers dampened the overall positive outlook.

Source: SEC filings. Expectations based on management guidance as reported in the 2024-05-01 earnings call. PP = percentage points.

Overview and description of activities

Fastly operates a real-time content delivery network that enables fast loading of websites and applications. The company’s services focus on delivering secure, efficient, and programmable edge cloud solutions. Fastly’s primary revenue streams are networking and security services, with the former contributing $104.2 million, growing 6% year over year, and the latter contributing $25.4 million, growing 13% year over year in Q2 2024. The last quarter was characterized by growth in customer acquisition, but also brought challenges related to managing costs and increased losses.

Today, Fastly’s key success factors include customer expansion, technology innovation, and operational efficiency improvements. The company is devoting resources to improving its edge cloud capabilities and focusing on more robust security solutions. Customer growth strategies are key to maintaining revenue growth, especially in large enterprise customer segments.

Key financial and operational data for Q2 2024

Fastly’s second-quarter revenue rose 8% year over year to $132.4 million. The network services business generated sales of $104.2 million, up from $98.5 million in the same period a year earlier, while security services grew 13% to $25.4 million. Despite the growth, the quarter also highlighted areas of concern. Fastly’s GAAP net loss widened to $43.7 million from $10.7 million a year earlier, indicating significant operational and financial headwinds.

Gross margins improved, with GAAP gross margin reaching 55.1%, up 2.8 percentage points from 52.3% in the prior year. Similarly, Non-GAAP gross margin also improved, increasing to 58.5% from 56.6%. The margin improvement reflected improved cost management related to direct expenses and efficiencies in infrastructure costs.

On the customer front, Fastly’s enterprise customer base grew by 24 from the previous quarter to a total of 601, representing a 4% sequential increase. The total customer base saw a slight increase, from 3,290 to 3,295. Although the net retention rate (LTM NRR) declined to 110% from 114% over the past twelve months, indicating some churn or reduced customer spending, the growth in enterprise customers underscored effective customer acquisition strategies.

An additional area of ​​focus was the decline in Remaining Performance Obligations (RPO). RPO decreased 2% to $223 million from $227 million in Q1 2024, suggesting a reduction in long-term contractual obligations.

In addition, Fastly’s innovation efforts have focused on introducing new AI-based products and improving security services. For example, the beta version of the Fastly AI Accelerator was designed to increase the performance of the ChatGPT-powered app. Fastly’s security offerings have been bolstered with improved bot management tools, illustrating the company’s commitment to continuous product improvement.

Waiting for something

Fastly management provided third-quarter 2024 revenue guidance of $130.0 million to $134.0 million, while adjusting full-year 2024 revenue guidance to $530.0 million to $540.0 million, compared to the prior range of $555.0 million to $565.0 million. This downward revision reflects the company’s cost realignment efforts and ongoing demand challenges.

The Non-GAAP operating loss guidance for Q3 2024 has been set at a range of (12.0) to (8.0) million, while the full-year Non-GAAP operating loss for 2024 has been revised to a range of (33.0) to (27.0) million. Additionally, the Non-GAAP net loss per share guidance for Q3 has been set at a range of (0.08) to (0.03), and for the full year has been revised to (0.16) to (0.11) per share.

Investors should watch Fastly’s ongoing customer acquisition efforts, particularly among enterprise customers, as well as further enhancements to its edge cloud platform and security services. Management’s focus on innovation and operational efficiency will be key to navigating the competitive landscape and addressing financial challenges in the coming quarters.

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