Fastly Enterprise Customer Confusion

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Repost from a thread. Here’s why I’m not worried about enterprise customer growth.

Remember, we’re in one of the toughest “spend” environments in recent history.

Fastly signed more total customers this Q than ever before as a public company. That’s great, many of those will eventually grow into enterprise customers who spend $100k a year or more.

Their enterprise customers were up 7 this quarter which is low… but remember, this is not “adds” this is their total enterprise customer count.

So if they have 10 that dropped out of the $100k/yr category and signed 17, it will look like they grew by 7.

I think people are making a HUGE mistake if they are worried about enterprise customer growth and I wouldn’t be surprised to see 20+ growth quarters soon.

The metric that matters way more is avg enterprise customer spend. Here’s how that looks since Q2’19.

Q2’20: $716,000
Q1’20: $642,000
Q4’19: $607,000
Q3’19: $575,000
Q2’19: $556,000

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FSLY Enterprise customer # increase over last few Qs most recent at the top

+7
+9
+14
+12
+19
+16

Only the last Q and a small part of the previous Q were affected by Covid. The rate of rise, even precovid, seems low for a company that says they have <1% of enterprise customer #s.

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”The rate of rise, even precovid, seems low for a company that says they have <1% of enterprise customer #s.”

Fastly says they prefer to partner with customers that aggregate usage. This allows them to have a lighter sales team and form closer relationships (Compute@Edge beta testing is surly leveraging and building upon these relationships). Consider customers like Shopify, Amazon.com and TicTok. They all funnel the usage of their own customers in to Fastly’s network and they directly grow together. This is a different dynamic then simply going after every enterprise that might offer some internal type of usage.

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Fastly says they prefer to partner with customers that aggregate usage.

I realize that is their model which is great. But here is what Bixby says in the last EC:

So you’re talking about large, large wallet sizes, I mean, to put our 300 enterprise customers into perspective, some of our largest competitors in the space have 6,000 – 7,000 of these. So, this is – we are in the early days of this market from our perspective. And I think that only that universe of 6,000 to 7,000 enterprise customers is very much limited by the lack of programmability and innovation in the traditional sectors. So if you sort of captures wider to some of these other companies that have 30,000 or 100,000 enterprise customers that certainly where we’re looking at

Seems like he is saying Akamai has 6000-7000 enterpise customers but thanks to programming at edge we can get up to 30,000 to 100,000 enterprise customers.
They need to add 1000 customers/year over 30 years to get to that level. Seems highly improbable.

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Seems like he is saying Akamai has 6000-7000 enterprise customers but thanks to programming at edge we can get up to 30,000 to 100,000 enterprise customers.

Is he saying FSLY can get up to 30K-100K enterprise customers or is he saying the TAM is 30K - 100K and thus there is plenty of room for growth beyond their 300 enterprise customers today?

The CEO also says: It is early, but we’re really stepping into it and seeing that acceleration and pretty excited about it right now.

FYI - Akamai has 7500 employees, Fastly has 630. FSLY still a small, young company with great technology that is killing it as their recent earnings report shows.

ClydeJ - long FSLY

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They need to add 1000 customers/year over 30 years to get to that level. Seems highly improbable.

Improbable if you use linear maths but growth is exponential. At 50% growth, how many years would it take?


**Year     --- Clients ---**
 **50%     100%**
   0        300      300
   1        450      600
   2        675    1,200
   3      1,013    2,400
   4      1,519    4.800
   5      2,278    9,600
   6      3,417   19,200
   7      5,126   38,400
   8      7,689
   9     11,533
  10     17,300
  11     25,949
  12     38,924
  13     58,386
  14     87,579
  15    131,368

Trust Einstein when he says that compound interest is the strongest force in the universe. LOL

Denny Schlesinger

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Tex, I disagree.

They just signed 114 new customers this quarter. They have 1,951 customers and 304 of those are enterprise customers.

Dollar-Based Net Expansion rate was 137%. Let’s assume that ticks down to 120%.

Currently, they have 1647 non-enterprise customers (below the $100k annual spend). For the purpose of this exercise, I’m going to shave ~10% of those customers off which I believe more than covers churn… and because I’m bad at math.

So our starting number is 1,500 non-enterprise customers.

Let’s say 10% of them spend $75k a year, 20% spend $50k a year, and the remaining 70% pay $25k a year.

*150 customers currently spend 75k: in 2 years at a 120% DBNER their average is $108,000. +150 Enterprise customers

*300 customers currently spend $50k a year: in 4 years at a 120% DBNER their average is $103k. +300 Enterprise customers

*1,050 customers currently spend $25k a year: in 8 years, at a 120% DBNER their average is $107k. +1,050 Enterprise customers.

So 8 years from now with a 10% churn and 120% DBNER (below what they have been reporting) they have 1,5000 new enterprise customers from their EXISTING CUSTOMERS ALONE WITH NO ADDITIONAL CUSTOMER GROWTH.

I could be majorly overestimating how much their customers are currently spending, but I tried to go very conservative with churn, DBNER, and didn’t factor in any additional growth.

This is how Amazon AWS, Microsoft Azure, and Google Cloud Platform (Google’s Cloud) have all grown so big so fast. They are usage-based. Edge computing is the natural next extension as applications get more dynamic and more customizable.

I believe with FSLY and NET we have an opportunity to invest in two companies that have a strong chance of becoming “Edge-Computing Titans” similar to how Azure, AWS, and GCP are considered “Cloud Titans”

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Hi Texmex,

<i> Seems like he is saying Akamai has 6000-7000 enterpise customers but thanks to programming at edge we can get up to 30,000 to 100,000 enterprise customers. 
They need to add 1000 customers/year over 30 years to get to that level. Seems highly improbable. </i> 

I've posted my thoughts on other threads so won't clog the board reiterating them again here, but as a whole I agree it's something to keep an eye on.

However, I thought it would be fun to have a play around with some numbers to see how the Enterprise customers might need to grow to meet Fastly's ambition, 
and what might accelerate that growth over the next 5 years.

 **Quarter/Year 	 Enterprise customers 	 QoQ/YoY increase 	 QoQ/YoY % increase 	 Full Year YoY increase** 
 
 Q3 18 	                213 			
 Q4 18 	                227 	              14 	              6.57% 	
 Q1 19 	                243 	              16 	              7.05% 	
 Q2 19 	                262 	              19 	              7.82% 	
 Q3 19 	                274 	              12 	              4.58% 	
 **Q4 19 	                288 	              14 	              5.11% 	               27%** 
 Q1 20             	297 	              9 	              3.13% 	
 **Q2 20(NOW)             304 	              7 	              2.36% 	               16%** 
 Q3 20 	                314 	              10 	              3.29% 	
 **Q4 20 	                325 	              11 	              3.62% 	               13%** 
 Q1 21               	338 	              13 	              3.98% 	
 Q2 21 	                354 	              16 	              4.78% 	
 Q3 21                 	375 	              20 	              5.73% 	
 **Q4 21 	                402 	              27 	              7.23% 	               24%** 	
 **FY 22 	                621 	              79 	                                       55%** 
 **FY 23 	               1,219 	              208 	              	                       96%** 
 **FY 24 	               2,600 	              465 	              	                       113%** 
 **FY 25 	               5,786 	             1,088 	                         	       123%** 

(Please note this is only supposed to be a fairly rudimentary & high level view of what might need to happen to get to the kind of Enterprise customer numbers 
quoted by Josh Bixby).

 **Takeaways** 

- The growth rate continues to decelerate for the rest of this financial year, driven by ongoing difficulty of signing new logo due to 
reduced Consumer spending in the Covid environment. The Full Year (FY) 2020 YoY new customer wins is a marked deceleration on FY19 YoY wins from 27% to 13%.

- However from Q1 21, Compute Edge launches from its beta and begins to reaccelerate this growth, 
being an innovative alternative to its competitors and helps to win new Enterprise customers. 
- By mid Q2 21 the end is in sight with Covid, Enterprise spending is up, coupled with Compute Edge. Quarterly new Enterprise wins break the 20's in Q3 21 
(in line with Austin's expectations above)

- By the end of FY 21 the YoY increase of customers is 24% - almost where it was in Q4 19 (sounds plausible).

- According to this model, by the end of FY 25 Fastly has almost 6,000 Enterprise customers. This would put it on a level of where Akamai is now. 
With the power of compounding, growing from 621 to 5,786 in 5 years this model would suggest 30,000-100,000 Enterprise customers in the next 10-20 yers is not impossible 
if Fastly is able to accelerate it's growth in the next couple of years with the launch of Compute Edge, maintain it's growth rate from FY22-25 (and if the following 
growth assumptions are met).

 **Assumptions used:**

- Q3 20: only a net 10 Enterprise customers are signed next quarter through ongoing reduced spending in the Covid environment

- From Q4 20 there is a quarterly 10% acceleration to the growth rate, and by Q2 21 this is accelerated by a further 10% due to increased Enterprise spending and a 
reduction in churn (post Covid), by Q4 21 the quarterly growth rate of 7.23% is in the range where it was Q1-Q2 19.

- In Q4 21 (and each Q4 thereafter), I have applied a one off annual 6.2% acceleration to the growth rate in the previous quarter. 
6.2% represents the record number of total customers signed in the last quarter, of which a portion will become Enterprise customers > $100k TTM. 
If anything I believe this acceleration is understated here, eg. as non Enterprise customers are > 6.2% (but am keeping this high level).

- By Q4 22, the 20% growth assumption applied in previous quarters from Q2 21 has slowed back to 10%, with Enterprise spending now back to a fixed level.

- Compute Edge continues to drive acceleration to the growth rate until Q3 22, at which point the growth rate is fixed (only accelerated by the small bump in annual growth in 
total customer count).

I know this is very high level & indicative assumption %'s used, but it perhaps gives some idea over what might need to happen to see Fastly's Enterprise customers get to a 
significant portion of it's total addressable market of the next 5 years. 
Modelling it out like this has given me some reassurance that despite a current deceleration in Enterprise customers, that the story is still well in tact. And achievable.

(Ps I have a new found appreciation for anyone trying to format tables on this site! I have modelled this quarterly, but grouped FY22-25 above)
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Sorry I spotted an editing error in my first post; if anyone is wondering why the 10% acceleration in growth rate applied from Q4 20, it is because of the presumed launch of Compute Edge

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The CEO also says: It is early, but we’re really stepping into it and seeing that acceleration and pretty excited about it right now.

I think it is significant that the CEO alluded to a better sales effort and to initial 3rd quarter results, and that he said they were looking for a senior sales exec to revamp the whole process. His point was , I think , that so far they have tapped 1% of the TAM and that they were gearing up to go after the rest, with the overarching implication that since their product was the best in the market place much stronger growth was soon likely.

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My thoughts are positive regarding what Fastly’s products and potential are for the future, based largely on reading CMF_Muji’s explanation of what they are / how they work for their customers.

These are things I think are worth watching:

• Cloudflare (Ticker: NET) Workers seems to be a very similar competing solution.
• So-called “aggregators” like Shopify are going to be the kind of deals where sales cycles are dependent on “touch”.
• Akamai could buy someone, I think, and Fastly does not have a “security” angle so they are the more logical target, imo.

-Another Rob

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So 8 years from now with a 10% churn and 120% DBNER (below what they have been reporting) they have 1,5000 new enterprise customers from their EXISTING CUSTOMERS ALONE WITH NO ADDITIONAL CUSTOMER GROWTH.

They have only 1500 not 15000 existing customers. So, even if they convert all of their existing customers to enterprise they are still 95% short of 30,000.

Also, you are forgetting that they are getting only 12% rev from non enterprise which is about $30M/year. By your assumptions of the non enterprise cust rev they should be getting 52.5M/y from that group. So, while I don’t deny that some of those will end up as enterprise cust. but 30,000 cust. is a far cry unless they find a way to significantly speed up customer growth.

Don’t get me wrong. I like Fsly. But the 30,000-100,000 cust. stated if I recall for the very first time seems like a little different from their usual focus of a smaller number of high value cust. Tiktok alone contributes $30M/y runrate which is the same as all of the nin enterprise cust! Remember they are not like NET. After all Servicenow makes $4B from 2000 customers I think. So, FSLY G2M has to become very different if they think they can get that many cust.

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EDIT: this is a repost from yesterday, however I had not realised that site formatting (table data) had made the original post virtually illegible. If at first you don’t succeed, try & try again, hope this formatting is better:

Hi Texmex,

Seems like he is saying Akamai has 6000-7000 enterpise customers but thanks to programming at edge we can get up to 30,000 to 100,000 enterprise customers.
They need to add 1000 customers/year over 30 years to get to that level. Seems highly improbable.

I’ve posted my thoughts on other threads so won’t clog the board reiterating them again here, but as a whole I agree that it’s something to keep an eye on.

However, I thought it would be fun to have a play around with some numbers to see how Enterprise customers might need to grow to meet Fastly’s ambition, and what might accelerate that growth over the next 5 years.

 **Quarter/Year 	 Enterprise customers 	 QoQ/YoY increase 	   QoQ % increase 	    YoY % increase** 
 
 Q3 18 	                213 			
 Q4 18 	                227 	              14 	              6.57% 	
 Q1 19 	                243 	              16 	              7.05% 	
 Q2 19 	                262 	              19 	              7.82% 	
 Q3 19 	                274 	              12 	              4.58% 	
 **Q4 19 	                288 	              14 	              5.11% 	               27%** 
 Q1 20             	297 	              9 	              3.13% 	
 **Q2 20(NOW)             304 	              7 	              2.36% 	               16%** 
 Q3 20 	                314 	              10 	              3.29% 	
 **Q4 20 	                325 	              11 	              3.62% 	               13%** 
 Q1 21               	338 	              13 	              3.98% 	
 Q2 21 	                354 	              16 	              4.78% 	
 Q3 21                 	375 	              20 	              5.73% 	
 **Q4 21 	                402 	              27 	              7.23% 	               24%** 	
 **FY 22 	                621 	              79 	                                       55%** 
 **FY 23 	               1,219 	              208 	              	                       96%** 
 **FY 24 	               2,600 	              465 	              	                       113%** 
 **FY 25 	               5,786 	             1,088 	                         	       123%**

(Please note this is only supposed to be a fairly rudimentary & high level view of what might need to happen to get to the kind of Enterprise customer numbers
quoted by Josh Bixby).

Takeaways

  • The growth rate continues to decelerate for the rest of this financial year, driven by ongoing difficulty of signing new logo during the Covid environment. The Full Year (FY) 2020 YoY new customer wins is a marked deceleration on FY19 YoY wins from 27% to 13%.

  • However from Q4 20, Compute Edge launches from its beta and begins to reaccelerate this growth, being an innovative alternative to its competitors and helps to win new Enterprise customers.

  • By mid Q2 21 the end is in sight with Covid, Enterprise spending is back up and Compute Edge is continuing to drive new customer wins. Quarterly new Enterprise wins break the 20’s in Q3 21 (in line with XMFALieberman’s expectations above)

  • By the end of FY 21 the YoY increase of customers is 24% - almost where it was in Q4 19 (27%).

According to this model, by the end of FY 25 Fastly has almost 6,000 Enterprise customers. This would put it on a level of where Akamai is now.

With the power of compounding , growing from 621 to 5,786 in 5 years this model would suggest 30,000-100,000 Enterprise customers in the next 10-20 years is far from impossible if Fastly is able to accelerate it’s growth in the next couple of years with the launch of Compute Edge and then use its momentum to simply maintain its growth rate from FY22-25 (and beyond).

Assumptions used:

  • Q3 20: only a net 10 Enterprise customers are signed next quarter through ongoing reduced spending in the Covid environment

  • From Q4 20 there is a quarterly 10% acceleration to the growth rate due to the launch of Compute Edge, and by Q2 21 this is accelerated by a further 10% due to increased Enterprise spending and a reduction in churn (post Covid). By Q4 21 the quarterly growth rate of 7.23% is in the range where it was Q1-Q2 19.

  • In Q4 21 (and each Q4 thereafter), I have applied a one off annual 6.2% acceleration to the growth rate in the previous quarter. 6.2% represents the record number of total customers signed in the last quarter, of which a portion will become Enterprise customers > $100k TTM. If anything I believe this acceleration is understated here and perhaps markedly (but am keeping this high level).

  • By Q4 22, the 20% growth assumption applied in previous quarters from Q2 21 has slowed back to 10% (Compute Edge acceleration only), with Enterprise spending now back to a fixed level.

  • Compute Edge continues to drive acceleration to the growth rate until Q3 22, at which point the growth rate is fixed (only accelerated by the annual growth in total customer count).

I know this is very high level, but it perhaps gives some idea over what might need to happen to see Fastly’s Enterprise customers get to a significant portion of it’s total addressable market over the next 5 years. Modelling it out like this has given me some reassurance that despite a current deceleration in Enterprise customers, that the story is still well in tact. And achievable.

The above assumptions are (in my opinion) on the conservative side and can by easily flexed. Coupled with the growth in DBNER, I believe that Fastly has many years of high growth to come.

Long FSLY

Ps I have a new found appreciation for anyone trying to format tables on this site!

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N.B. this model is predicated on Fastly accelerating its growth rate through Compute Edge, increased Enterprise spending & a conversion of non Enterprise customers. However these are unknowns at present, and so this view is meant more as indicator of what might need to happen to get to the Enterprise customer numbers mooted in the medium to long term (30,000-100,000, or more near term 6,000-7000).

I personally don’t expect to see Fastly gaining net Enterprise customers > 20’s until mid-late FY21, and I do not expect Fastly to blow-out earnings for the rest of this financial year. My view is long term and I plan to hold until there’s a change to the story (for me). There could be some short term pain, for long term gain. Although I hope to be proved wrong of course :slight_smile:

My view on why the acceleration of Enterprise customers DOES matter to achieve high growth rates, with DBNER acceleration perhaps unlikely to continue through the rest of this year, on the following thread:

https://discussion.fool.com/what-really-jumps-out-at-me-reading-…

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