Much has been written here since 6/23/20 when Beth Kindig said FSLY May not be worth current share price. I appreciate the examples of what FSLY can do that others can’t; but, I believe Peter Offringa at Softwareatackinvesting.com said it well back in November how FASLY is different:
I edited very little from The following. I recommend reading the entirety of his Blog.
-Edge Compute (Copute@edge)is the newest offering from Fastly and the area with the most potential. In the other five product areas, Fastly’s offering is equal to or incrementally better than that of competitors. These are still areas of commoditization, where competition around features and price will continue.
Where Fastly is making its big bet and primary technology investment going forward is in edge computing. This involves providing programmability for customers in multiple, distributed locations. The benefit for customers is similar to the driver behind CDN. By moving processing and delivery closer to end users, customers can reduce latency and bandwidth requirements associated with sending all requests to a central data center. Fastly achieves programmability by exposing a hosted runtime and development environment for customers on its POP servers.
This is important for investors to consider, as this capability hasn’t existed previously. A plethora of use cases have emerged in the last couple of years that elevate the priority of running code closer to the edge of the network.
Fastly’s intent to focus on edge computing was taken to the next level in November 2019, with the announcement of their Compute@Edge product. This offers a language-agnostic compute environment running on Fastly’s distributed network. It is designed to allow developers to build more advanced edge applications with “greater security, more robust logic, and new levels of performance”.
The platform is deployed in a “serverless” model, which means that Fastly is not continuously running servers with customer code waiting for user requests. Funny, “serverless” is a bit of a misnomer. A server still processes code in response to a user request. It’s just that this server is not started until the request comes in, versus the normal model of keeping a server running continuously with active threads waiting for requests.
In Fastly’s model, when a request comes to a POP, the edge compute platform spins up a web container to process that specific request. In the past, this server start-up involves noticeable latency, ranging from hundreds of milliseconds to even several seconds. If a user request has to wait more than 100-200 milliseconds for a server response (not including time to process and return content), then the lag becomes noticeable to humans. Fastly claims their servers can start up in 35 microseconds, which is extremely fast and pretty much obviates the core argument against serverless modes of operation in the past. Fastly claims this is 100x faster than competitive serverless solutions. This is a fair assessment, as AWS Lambda previously took several hundred milliseconds and now requires at least several milliseconds to boot.
The engine behind Fastly’s serverless infrastructure is based on WebAssembly, which was originally designed to allow browsers to run code locally, but has been extended to the server. WebAssembly is a great framework for this, as it is already designed for high performance, low memory footprint and security. Fastly built their own compiler and runtime, called Lucet, which leverages and extends WebAssembly for server-side execution requirements. You can read about Lucet in this blog post. It has been open sourced, so that developers understand how it works.
Me Here: I don’t try to make a habit of investing in the hope of a future TAM. I believe current share price is more than enough to explain current FSLY offerings. I don’t understand why FSLY’s margins are 30% lower than NET’s. It could be this next level R&D that FSLY has put together for actual computing at edge is the reason?
I’ve reduced my allocation In FSLY having more than doubled since their earning report from 14% to 5%. I put 5% back into TWLO after what I believed was better than FSLY’s. I still don’t like how the TWLO CEO characterized growth the prior two quarters (with SendGrid acquisition confusing the numbers) but Wow. They’re rev growth acceleration apples to apples (without SendGrid) was great and their margins are much better than FSLY.
I put the rest of what was in Fastly into WORK after their great quarter that wasn’t as good as Zm; but WORK’s 87% margins (twice that of FSLY) and currently higher rev growth than is projected for FSLY, I like this one better now. I understand how WORK is a communications platform (eg Zm integration) and only a little how it wouldn’t compete with Zm if when Zm expands its Ability to become a platform.
I continue also to hold NET at 5% due primarily to their fast pace of product development and 70% margins, higher than FSLY and TWLO.
Please let me know what you