Fastly has customer concentration
Fastly has a usage based model
Fastly is in the early phase of it’s growth so not a wide variety of customers yet
All of this inherently leads to a volatile revenue stream. We should not be surprised by the wild swings in revenue for this company.
The core issue is has anything fundamentally changed with the company. The answer is no. The fact that TikTok was banned in India likely explains the loss of revenues
Fastly needs to focus on continuing to add to enterprise customers and over the years the revenue swings will be less and less severe but over the next few years we can expect more wild swings up and down until the revenue stream grows and becomes more diversified
Thank you for the quick summary! On your question if anything has changed fundamentally with the company?
I think the answer to do that is 2 sided. Yes and No.
They changed their CEO which its a big deal, so the CEO needs to prove that he can do the job. It is easy to rip the benefits of massive usage increase in Q2, so that is not really his achievement. Purchasing Signal Sciences probably can be attributed to him (I doubt the process started when he got the CEO title) but we are yet to see how would that help with the overall company growth since the actual offering is more like a duck taped solution in comparison to CloudFlare.
Couple of investors have attributed the revised guidance as a management error (I won’t repeat them since there are multiple posts here outlining the details). I do not see the new CEO as a visionary leader, or someone with good sales background which can help the company scale its client base (IMO).
Market threats are a real, and CloudFlare aggressively launching new products and having already a 3 years old mature Edge platform its a big deal. I hate the actual stock to become another Slack, but Matthew Prince is a visionary CEO, same way Satya Nadella is and I would not want to be against their corner.
Help me understand how India plays a role in the revenue miss.
I believe India banned on June 30, so when Fastly gave guidance on Aug 5 they were aware and should have guided accordingly.
What am i missing?
I will add this from Cloudflare’s last conference call. I remember people here pointing this out and it was just forgot about.
Matthew Prince "The vast majority of our revenue, more than 95% we’ve built upfront on a subscription basis that generally gives us good visibility into our future results.
Another consequence appears to have been and we saw the peak in customer concession requests earlier than other companies that fill in arrears on a more volatile usage basis. One thing we are seeing increasingly is customers who were surprised by their large usage based bills that other vendors now coming to us for predictable consistent pricing. No one likes to be surprised by a bill. And we believe the consistency of our staff approach is not only more predictable for us, but also builds trust and wins loyal customers over the long-term." - END
Me here - To me he was telling everyone the problem with Fastly early on “No one likes to be surprised by a bill”. I grabbed this off their last earnings report.
Me here - To me he was telling everyone the problem with Fastly early on “No one likes to be surprised by a bill”. I grabbed this off their last earnings report.
Indeed, subscription billing might be preferable if for nothing else than predictability. Good point!
I’m not quite getting why FSLYs customers weren’t expecting “surprise” bills. They signed up for a usage-based service. The cost of the service is directly related to their usage. Their usage may or may not provide a revenue per unit of usage. If it does, they can price in their net revenue as it relates to their FSLY cost. If it doesn’t, they can still price in a cost/usage. If their revenue is not directly related to usage, then FSLY maybe isn’t the right choice for them and this was always an eventuality. Increases in FSLY bill is a direct reflection of their own growth.
While predictability in cost is great, I see a fixed cost basis also as a double-edged sword. If they have high usage it’s a bargain (but maybe opposite for NET because their cost increases?). If they have low usage it’s expensive (but maybe opposite for NET because their cost decreases?). NET may have a different issue down the road when their price is unsustainable and their customers flee when the eventual price hike comes.
Consider many people’s cell phone bills. Nowadays the cost is based on data. The more data you want, the higher the cost. If you get unlimited data, for the last several months you may have been paying a premium for the opportunity to almost exclusively use your WiFi and not your data. Of course you can change carriers, or data plans, and pay less. If you’ve been paying for smaller allotments of data you are looking wise right now.
In my thinking, the customers being surprised by their bill have been poorly estimating their operating costs. Yes, that may reflect negatively for FSLY unfortunately. They’re also likely going to be unhappy when their usage tanks on NET and yet still get charged the same.
-Griz
Long FSLY, for now as I’m still undecided on what to do.
Big users would prefer the subscription model, since their usage is subsidized by the smaller subscribers. (This is a problem for Fastly if they do not meet the following list.)
• Fastly has to offer a service that exceeds the performance of others, and that customers need.
• And/or Fastly has to have development tools, SDKs, APIs, etc. that are better than, or at least as good as others.
-Another Rob
(still long, but looking to do some covering out to LT gains)
The way I see it is not so much the surprise here is your bill, but a surprise look at the demand usage spike and now here is your bill. Prince says “companies that fill in arrears on a more volatile usage basis”.
Which makes sense when they now are using less. Tick Tock made a new algorithm instead of paying Fastly more. Kind of like putting limiters on your kids usage because you never know what the kids may do and you now have an unexpected bill.