Fastly, conviction and new information

First of all, I want to say thanks to everybody for their insights into Fastly in the last day or so. I find it very educational. I’ve only been actively investing since the beginning of the pandemic really, so these past couple of days feels like a real learning experience. And since I found this board this summer, I have made some nice returns, and that is largely thanks to Saul and the other contributors. So when Saul, Bear, Stocknovice and others, experienced investors who have been doing this at the top of their game for many years, all weigh in with their views and let us know that they have sold or trimmed Fastly, you pay attention. It would seem silly not to.

But while simply copying what they do would almost guarantee excellent returns and a less stressful life, that’s not how I want to invest, and it doesn’t seem conducive to learning. I like to think critically, so I try to take the information they’re offering and the lessons I’ve so far learned and apply them to my own decision making. I want to understand the rationale behind my investments, and to build my own conviction.


When I first looked into Fastly, quite honestly, I did not see what the fuss was about. When I read their Q2 report, my first reaction was to think ‘where is all this hype coming from’ and that I should have done more due diligence before entering my small position then. It was immediately apparent to me that its Enterprise customers were decelerating sequentially and its usage had spiked, but that was forecast to be flat going forwards. Therefore where was its growth going to continue to come from? (…).

But then the more I read, the more I found answers to each of these concerns and I developed a thesis, and in between Q2 and Q3, my conviction for Fastly only grew, considerably. I doubled my allocation around $70-80, and when it reached $130 it represented 20% of my portfolio.

And so what I have struggled to come to terms with since Fastly’s pre-earnings guidance, is what is the new information that is driving this overall negative sentiment (at least on this board)? I understand completely why the stock price fell 30%, as a beat was almost certainly priced in. But what has changed from that guidance alone that someone would be invested in Fastly last week, but not this week.

New Information and the Story

When faced with the question should I sell a stock, I have learned a couple of lessons from this board:

  • Don’t sell just because the stock price rises
  • Sell when new information presents itself or the story changes

I understand most of the points made on the board about Fastly’s guidance, and I agree with most of them, and respect the decisions everyone has taken for good reasons.

But for me, what I keep coming back to, is how much of it is new? We already knew that Fastly’s revenue would not accelerate sequentially, this is what they had guided for, and we knew that TikTok was a risk factor. And what does this miss mean? The optics for missing guidance is not great, and does not speak volumes for management. But we are talking about a $4m miss. My thesis to invest in Fastly was not based on $4m of revenue either way, or on the notion that management was sandbagging guidance, but with a more long term perspective.

What is the new information between Q2 and Q3? And has the story changed?

  • The acquisition of Signal Sciences. Accretive to revenue, with higher growth, higher margins, 42 new Enterprise customers, a company with similar DNA, synergies and cross-sell opportunity, a more rounded proposition to go after new customers with, and Secure@Edge to integrate with Compute@Edge, this seemed like a great deal all round. Let’s not forget, this should reaccelerate Fastly’s revenue, organically or not. SSI’s deep-dive: (…)

  • Partnership with Google Cloud. Making Fastly available on Google Cloud Marketplace means that customers can quickly purchase Fastly’s solution from Google Cloud and get a unified billing experience. This unique partnership allows developers to build, test, and deploy applications in a scalable, reliable cloud environment (…)

I understand the point made that, along with Compute Edge, these are not the here and now. But they are the very near future, and surely need to be a consideration if not motivation for any investment in Fastly.

  • Lowered guidance: "usage of Fastly’s platform by its previously disclosed largest customer (TikTok) did not meet expectations, resulting in a corresponding significant reduction in revenue from this customer”. "During the latter part of the third quarter, a few customers had lower usage than Fastly had estimated”.

I’ve already posted my initial thoughts on this (…). While I don’t like how management have handled this, I feel like we might be missing something here - I would like to understand why. TikTok we knew was a risk, I could most likely accept a geopolitical short term impact here. The most concerning element for me is the usage impact of a ‘few customers’ in the latter part of the quarter. Understanding what is driving this usage impact seems absolutely integral in understanding what the run-rate is going into Q4, which is guided to be +18% sequentially. But we don’t know the why - yet.

The question is, for those who held shares after Q2, is this an overall net positive? For those selling, it suggests not.

Has the story changed? For me, I’m just not sure the information is there yet to make a final decision on this. I agree that the story has become more complicated, and I well understand the argument that it’s a red flag (especially given the usage false flag ahead of Q2 earnings), and that we can always sell out now and re-enter once we have this information. And why bother with the uncertainty. But to do that, perhaps it would be to make a decision because of the absence of information.

I am attaching a lot of importance on what management comments are going to be in the Q3 earnings call. If the answers are vague or signal to me a continued deceleration, I will mostly likely sell out of my full position. With all the uncertainty going into that, I asked myself whether I would buy my position right now? As really that is the same decision as holding it. I’ve thought about this and taken on board many of the comments, and have trimmed my outsized position heading into the call to one I’m more comfortable with. I was looking for an opportunity to top up Zoom after Zoomtopia, so that is where I reallocated to.

Maybe I’m overthinking this, but that’s in my name. I have felt torn between the actions of the great investors on this board, whose experience and knowledge I value a lot, and my own thinking above - and reached somewhere in between. Maybe I’m making a mistake holding onto my position at all (11%), and maybe I’ll learn that the hard way. But at least I’ll be learning :slight_smile:


AThinkingFool, I totally respect what you did and why you did it. Thanks for sharing.

I sold my 10% position in Fastly because it was a mistake to have kept it after in the CC I learned of the anemic growth and the flat guide in usage.

There is no new information that led me to sell. The pre-announcement was just a wake up call for me to let these facts sink in to my thick head.

That’s how I see it anyway,


FYI: put half in NET, a bunch more into Slack and I might put more into my now full position in DocuSign.



There is no new information that led me to sell. The pre-announcement was just a wake up call for me to let these facts sink in to my thick head.

C’mon, this is ONE quarter! Since when does one quarterly report make it a trend!? The ONE QUARTER slow down is on the basis of political attacks against it.

I dropped Facebook over that over 2 years ago, and how did that one turn out? Facebook is even still attacked politically and does that even matter to them at this point? You want to start using your head, then start thinking about the next few quarters or few years instead of only the last 3 months.



But we are talking about a $4m miss

Hi ThinkingFool

I think that that is where our thinking diverges. NO chief financial officer nowadays guides to where he thinks the company will come in. That would be suicide. He has to leave a 5% to 10% margin to allow for the unforeseen. Let’s say he expected $5 million (just 6.6%) over the $75 million guided to. Then we have a $9 million miss, if they come in at the top of their new range.

But all that is fluff. The question is, do you know ANY other company we’d be interested in, and would you invest in it if you do, that only grew enterprise customers by 2% in a quarter??? Two companies per month! In a company that relies on enterprise customers for 88% of their revenue???

We got deceived by the story about the great technology. But if they have all this great technology why were those enterprise companies flocking to Cloudflare instead, and at 27 companies per month?

When you put that with the revenue turning out to be a one time usage blip, and a large miss, with growth declining back by 20 percentage points to their previous 38%-40% growth level, SOMETHING IS WRONG, and I wasn’t willing to sit around to find out what.

Again, I may be completely wrong about this, but I have no regrets about exiting.



Hi Saul,

Thank you for your insight. Truly your success stems from your ability to think rationally when others tend to panic and scare.

Your direct comparison with NET tells us clearly how poorly the sales was executed. And indeed I don’t think any good management would provide guidance without thinking that they would easily beat the numbers they post.

I know that you put a heavy emphasis on the opportunity cost of time and money. No matter how great outlook FSLY has, it might not worth your investment at this moment.

I am just curious, as a very young investor and a person lacking any experience in the SaaS field, whether companies like Fastly which has great technology (maybe it is not that great as you said) but seems to have difficulty in executing get to recover?

Thank you as always!

Mike L

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When you put that with the revenue turning out to be a one time usage blip, and a large miss, with growth declining back by 20 percentage points to their previous 38%-40% growth level, SOMETHING IS WRONG, and I wasn’t willing to sit around to find out what.

Well let me give you something else to worry about Saul. :).

You jumped into Net that has 50 times more customers than Fsly and almost double the amount of enterprise customers but only about 33 percent more revenue. Net was founded in 2009 and Fsly was founded in 2011. Jumping out of the sector might have been the best move. Going after the cheapest provider doesn’t really seem like a growth strategy. :slight_smile:



The question is, do you know ANY other company we’d be interested in, and would you invest in it if you do, that only grew enterprise customers by 2% in a quarter??? Two companies per month! In a company that relies on enterprise customers for 88% of their revenue???

Hi Saul,

I do understand your concern here, because I had exactly the same thought/question reading Q2 at the time. However, this is what I have learned and I have rationalised it as follows, based on my limited technical understanding (of course I could well be wrong too):

  • Comparing Cloudfare and Fastly, they have two different business models. Cloudfare is focused on driving growth through new business, while Fastly is a usage based model with a developer focus. Its USP is attracting fewer but significant customers with a similar DNA (Shopify, TikTok, Amazon - their customer list is the ‘who’s who’ of tech). They then aim to aggregate that usage, and form a closer relationship with the customer. So as Shopify or Amazon grows, its usage is funnelled into Fastly’s network, and Fastly grows.

  • Therefore Fastly is less sales focussed than Cloudfare. Cloudfare signing more customers is not necessarily an indication that it has a better proposition. Indeed, if you are to compare their relative DBNER’s, Cloudfare had 115% (down from 122% YoY) last quarter while Fastly had 137% (up from 133% QoQ).

  • Cloudfare and Fastly are not, therefore, necessarily going after the same target market. Fastly has fewer, big customers, that will drive a lot of their growth by simply growing themselves, while Cloudfare needs to go after new customers to achieve the same growth.

Both Cloudfare and Fastly are ways of playing the CDN/Edge opportunity, with different business models.

Fastly’s Enterprise customers figures are still important however, and I reached the following conclusions on that:

  • Fastly’s Enterprise customers (>$100k) only increased by 7 in Q2. However this figure is net of churn, so a number of customers dropped out of this bracket, mostly from the hospitality and travel sectors (Fastly has customers such as AirBnB), some usage dropped as much as 88%. So Fastly did not only benefit from Covid usage.

  • So what does that mean? With % of revenue from Enterprise customers increasing from 86% to 88% YoY, this suggests all revenue growth was from Enterprise customers, who spent more (with average spend up from $642,000 to $716,000 quarter on quarter). Therefore 20 ‘Enterprise’ customers in the travel or hospitality industries could have dropped out of this bracket in Q2, but the growth of one Amazon and one Shopify more than offset this.

  • So how much new business did Fastly generate? In Q2 a record number of new customers were added with total customers growing from 1,837 to 1,951 quarter on quarter. This presents a long term opportunity, because these customers will grow into their usage profiles (customers will be unlikely to start on 100% usage). Therefore, this represents Enterprise customer pipeline.

All in all, I see both Cloudfare and Fastly as similar plays, but with different models. Fastly seems to have some headwinds primarily in the form of TikTok uncertainty (and the big one I want to understand, is the usage impact of the other customers in September), but it also has some tailwinds just around the corner (Compute Edge, Signal Sciences). I appreciate your comments on management guidance.

Between Cloudfare and Fastly, I hold 10% in both, because at this moment, I’m not sure which way the wind is blowing. Some of my conclusions above, are just my own interpretations from reading the investor reports/earnings calls - so perhaps should be taken with a pinch of salt.

But I also know that your gut feel and knowing when to sell has been a hallmark to your investing success over the years, and that has influenced my thinking to trim. Thanks for your insights.



I was looking at how Cloudflare defines Enterprise customers:

Paying Customers (> $100,000 Annualized Revenue). While we continue to grow customers across all sizes, over time, our large customers have contributed an increasing share of our revenue. We view the number of customers with Annualized Revenue greater than $100,000 as indicative of our penetration within large
enterprise accounts. To measure Annualized Revenue, we take the sum of revenue for each customer in the quarter and multiply that amount by four. For example, if we signed a new customer that generated $600 of revenue in the quarter, that customer would account for $2,400 of Annualized Revenue for that year.
Our Annualized Revenue calculation excludes (i) agreements that were not entered into through our ordinary sales channels, (ii) revenue generated from customers using only our registrar product, and (iii) customers using our consumer applications, such as and Warp, which agreements and customers
together represent an insignificant amount of our revenue. Our Annualized Revenue metric also includes any usage charges by a customer during a period, which represents a small portion of our total revenue and may not be recurring. As a result, Annualized Revenue may be higher than actual revenue over the course of the year.

This can be kinda misleading since it’s based on Annualized revenue vs. Fastly defines an Enterprise customer as:

Enterprise customers (defined as spending $100,000 or more in a twelve-month period

So Cloudflare is counting unrealized > $100k Enterprise customers vs. Fastly is counting only realized > $100k accounts. I think this is pretty material and it’s comparing apples vs. oranges which could also explain some of the slowdown. Also, Fastly did bring in the most number of total customers last quarter both from a YoY perspective as well as a gross figure which could very well be a leading indicator for their Enterprise customer count in the future.

Tik Tok is definitely a hiccup and they’ll have to grow more in the next few quarters to be able to diversify their revenue a bit from Tik Tok’s overall footprint, but as noted before, this is like when Twilio got hammered b/c of Uber divesting from their services. I think Fastly should be able to get through this pretty quickly. Plus, let’s be honest, their CFO was pretty skiddish with Q3 guidance in the earnings transcript, so the fact that they’re revising to be slightly under isn’t incredibly surprising. I’m holding onto my shares for at least another quarter or two to see if this is just a hiccup or if this is something more systemic.


“C’mon, this is ONE quarter! Since when does one quarterly report make it a trend!? The ONE QUARTER slow down is on the basis of political attacks against it.”

That’s exactly my point. The one quarter where the usage made it look like they were going to accelerate did not make a trend and that’s what I had to get through my head.

DocuSign had two quarters at ‘next level’ performance before I initiated a position on 9/18/20.

Slack had 2 quarters of next level performance before I added a second third.

But, As others have said her, I let myself get carried away by the tech and the team by getting up to a full position with one step up and what 7 net adds?

Yes I had invested in Pivotal as well and got out early also. No regrets there. And none here either. Rule Number 1.



We saw rapid growth of Fastly and now the growth has stopped. They reported that in the latter part of the third quarter, a few customers had lower usage than Fastly had estimated.

Fastly has a usage based revenue model. In my simple mind, could it be the unexpectedly high monthly usage charge their customers experienced that soured the taste for Fastly? Especially in these pandemic times, preservation of cash and the desire to have predictable monthly charges may be curtailing the growth of Fastly.



You provide some potentially good reasoning in your post, and you are astute to acknowledge it as rationalizing. One thing I would suggest you ask yourself is this:

If FSLY were to fall further, let’s say 30%, would you back up the truck and buy? To me that’s a great test of one’s conviction in these types of situations.

You appear to have decently strong conviction in FSLY (as evidenced by a 10% position), so this hypothetical might be a good check on your thinking.


If FSLY were to fall further, let’s say 30%, would you back up the truck and buy? To me that’s a great test of one’s conviction in these types of situations.
You appear to have decently strong conviction in FSLY (as evidenced by a 10% position), so this hypothetical might be a good check on your thinking.

Hi Purplemist,

To be honest, what the share price does has little impact on my decision making. At all.

After Q2 earnings, Fastly dropped 30% in a few days. I held. And I more than doubled my allocation, as my conviction grew.

Then Fastly rocketed for no apparent reason, growing to 20% of my portfolio. I considered, do I have that level of conviction in it? I decided that I had.

And now after the lowered guidance, my conviction has been shaken somewhat (because I was expecting raised guidance, and need some clarification on where the miss is stemming from).

So to answer your question, would I back up the truck and buy if Fastly dropped 30%? Well that would depend on what the new information is, in the Q3 earnings call. If it’s something I can see past, then yes. If not, then I would sell.

If you are asking, would I back up the truck if it crashed another 30% between now and the Q3 earnings call? Then yes absolutely I would (assuming it is not caused by any new information), because about a 10% holding is the level of conviction I currently feel comfortable with.

All in all, I am basing my conviction on information, and not the share price. Truthfully, I had not looked once at Fastly’s share price once in the last couple of days, after the initial drop, except when reallocating some to Zoom. I did not want it to cloud my thinking. I could not tell you what it closed the week at.

In fact, a useful strategy I’ve found, is that if you see it is a red day, to not even look at your portfolio. This will only cause you to make rash decisions based on the share price, rather than the fundamentals.



I agree. One bad quarter may not mean much. Same as when Saul sold Shopify I believe at around 170 a share and now its 6x higher. (I have held through it.)

Saul has made his “mistakes” selling early (Livongo continued on its tear after he sold and I am still holding along with Tdoc), but he has also made good moves selling stocks like Nutranix for example before a further tank.

When you have only a few positions, this aggressiveness is probly needed or else you risk losing a large portion of your portfolio.

But guess what? My returns on my portfolio is nowhere near what Saul gets. There is a method to this madness and I believe it is playing defense aggressively too (selling out quickly once a story seems to have changed and conviction has dropped). Better to be safe than sorry.



Thanks for your response. It sounds like you have a strong conviction and a long term view on the company based on your understanding of it.

The accuracy of that view is what ultimately determines value in the long run, so good for you!

Agreed that short term share price isn’t what matters. I haven’t spent enough time to develop that view for FSLY (hence the previous tiny allocation) and I’ve other, much higher conviction positions, so the decision to exit quickly was an easy one for me.

Best of luck.


 Revenue Growth. FSLY     E 40.6%	62.0%.  37.9%	44.4%	35.3%
	   		   E $70.0M     $75M    $62.9M  $58.9M $49.8M

	              NET	? 	48.0%	48.0%	51.2%	47.5%
					$99.7M	$91.3M	$83.9M	$73.9M

	              DDOG	 ?	68.0%	87.0%	84.5%	88.0%
					$140.0M	$131.0M	$113.6M	$95.9M

	               CRWD 	?	84.1%	85.3%	88.9%	88.4%
					$199.0M	$178.1M	$152.1M	$125.1M

	              ZM	?	355.1%	169.0%	85.0%	96.0%
					$663.5M	$328.2	$188.3M	$166.6M

	              OKTA      ?	43%	46.1%	44.9%	45.0%
					$200.4M	$182.9M	$167.3M	$153.0M   
                      PTON.     ?       469.5%	268.4%	259.2%	305.7%
                                        $607.1M	$524.6	$466.3	$228M

My understanding of the technology of these software companies is limited. Can barely do a chart on this forum :wink: Left to right is current to preceding quarters. I subscribe to Bert’s newsletter and try to learn, reading SSI, Beth, Muji’s excellent breakdowns and everyone who posts here, sharing their knowledge. I appreciate your generosity and insight.

To me, Fastly was growing at 35- 40% over the past year and enjoyed a one quarter surge in revenue due to the pandemic. Many people, myself included, believed the revenue growth would continue. The pre-announcement lowering estimates popped that expectation. Could Signal Sciences and Compute@Edge and Secure@Edge re-accelerate their revenues in the near future? Of course.

I update a spreadsheet everyday after the market closes. Thank you to the person on this forum, likely Saul, who recommended writing down your stocks’ share prices each day. This has helped immensely, because updating the spreadsheet, erasing the previous values, did not give the same perspective. FSLY traded from $88.73 - $90 on Aug 20th- Sept 28th. At that time, we expected revenue to grow in the +60% range. With lower expected revenues, seems reasonable that the stock price will likely fall and not soon appreciate in value the way we previously anticipated.

In other words, the stock tread water in the $90 range when expectations were higher. With lower expectations, seems to me the stock price will not be going up any time soon.

After reading the press release cutting guidance, I pulled up the after hours market, saw FSLY trading at $90 and sold my 10% position. I’ve been wanting to put some money into cash but have hesitated knowing that timing the market is next to impossible.

This board has taught me so much and to look at the stocks as vehicles to grow my money. Am still learning the importance of FCF, DBNER and all the other financial considerations, but Rev Growth % and sequential dollars are #1 for me. I recently sold out of OKTA, which is an outstanding company, because PTON seemed an even better avenue to enjoy gains. Was pleased to read Gaucho Chris’ portfolio update where he made the same move in September. And felt great to read Saul’s update this week detailing why he sold out of Fastly. When people with knowledge you respect, who have proven track records of outstanding investing results, independently analyze the situation, draw the same conclusion and make the same decision, that’s the best type of confirmation one can hope for.

Thank you again to everyone.

With kind regards.



@ATthinking - Very well said and I appreciate your detailed explanation. It shows lot of character to stand and weather out so called temporary headwinds

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