Fastly, Inc ((FSLY)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Fastly, Inc. recently held its earnings call, showcasing a mix of achievements and challenges. The company reported positive strides in revenue growth, customer acquisition, and product expansion, which were bolstered by effective cost control measures leading to positive cash flow. However, the optimism was tempered by concerns over a decline in net retention rate, slower-than-expected growth in security revenue, and geopolitical uncertainties surrounding TikTok.
Revenue and Operating Loss Guidance Exceeded
Fastly exceeded the upper ends of its revenue and operating loss guidance ranges, which led to an increase in its 2025 revenue guidance by $10 million and operating loss guidance by $3 million at their respective midpoints. This achievement underscores the company’s strong financial performance and strategic execution.
Positive Free Cash Flow
The company generated $8 million in positive free cash flow, marking significant progress towards achieving breakeven for the year. This development reflects Fastly’s effective cost management and operational efficiency.
Customer and Revenue Growth
Fastly reported revenue of $144.5 million, representing an 8% year-over-year increase. The enterprise customer count grew by 3%, and the average enterprise customer spend increased by 4% quarter-over-quarter, highlighting the company’s successful customer acquisition and retention strategies.
Diversified Revenue and Market Share Gains
Revenue from outside the top 10 customers grew by 17% year-over-year, while the top 10 customers represented a decreased share of total revenue. This diversification indicates Fastly’s expanding market presence and reduced dependency on its largest customers.
Security and Product Expansion
Fastly enhanced its security offerings and product portfolio, including AI bot detection, with a focus on cross-selling security solutions to existing customers. This expansion is part of the company’s strategy to strengthen its market position in the security sector.
Significant Growth in Compute and Emerging Products
Revenue from emerging products grew by 64% year-over-year, driven primarily by compute products. This growth highlights Fastly’s successful innovation and expansion into new product areas.
Improved Gross Margin and Cost Control
Fastly’s gross margin was 57.3%, slightly better than projections. The company implemented cost controls and efficiency improvements, contributing to its strong financial performance.
Decline in Net Retention Rate
The trailing 12-month net retention rate was 100%, down from 102% in the prior quarter and 114% in the year-ago quarter. This decline was attributed to revenue decreases with a few of the largest customers.
Security Revenue Growth Lagging
Security revenue grew only 7% year-over-year, not reflecting the potential from last year’s portfolio expansion. This slower growth indicates challenges in fully capitalizing on the expanded security offerings.
Conservative Guidance Due to TikTok Uncertainty
Fastly’s guidance excludes U.S. TikTok revenue after June 19 due to geopolitical uncertainties, impacting revenue projections. This cautious approach reflects the company’s need to navigate macroeconomic challenges carefully.
Forward-Looking Guidance
Looking ahead, Fastly anticipates a 9% annual growth for 2025, raising their prior guidance. Despite the positive outlook, the company remains cautious due to macro uncertainties and the exclusion of U.S. TikTok revenue from their guidance beyond June 19.
In conclusion, Fastly’s earnings call highlighted a mix of positive achievements and challenges. While the company demonstrated strong revenue growth, customer acquisition, and product expansion, it faces hurdles such as a declining net retention rate and slower security revenue growth. The geopolitical uncertainties surrounding TikTok further complicate the outlook. However, Fastly’s strategic initiatives and financial discipline position it well for future growth.