I am not impressed with $FSLY’s performance or mgmt … yet again.
Rev +40%, decelerating -4pp YoY. That isn’t the issue; they are usage based and bounce around.
But it’s their first Q of SigSci – adj out the $6M (an analyst had to wiggle out in Q&A), and they grew 30%.
Sorry, but for my rules, 30% rev growth is NOT hypergrowth.
Looking forward, guidance for Q1 was 32-36% YoY growth, but again adj out SigSci’s expected 8M, and it’s really 19-24% YoY. Terrible! Clearly no Compute@Edge contribution either.
Customer growth was +20% and enterprise custs slower at +12% (+3.5% seq). This is where I see the fracture in execution - you cannot scale if you aren’t intaking new custs at a rapid rate.
Good news here: A new CRO was hired, hopefully to correct this.
To see how striking the slow cust growth looks… let’s compare $FSLY’s “top tier” custs yet again with “SMB focused” $NET.
36 new enterprise custs in Q4 for $FSLY, +3.5% seq or +12.5% YoY to 324.
92 new enterprise custs in Q4 for $NET, +12.6% seq or +50.5% YoY to 828.
Read that again. Cloudflare’s enterprise custs grew 12.6% QoQ compared to Fastly’s 12.5% YoY.
Sure, Avg Rev per Enterprise Cust rose +28% YoY to 782K. Their entire operations are based on making their big custs bigger, vs getting new custs.
Looking at margins, CFO and FCF margins have had a significant turn negative, while the revenue growth is now decelerating.
But Gross Margin improved right? Yeah well SigSci has 85% margins in a SaaS model, throwing the usage-based sub-60% margins up a spell.
Another little thing that bugged me - they seemed flustered by the fact SigSci has SaaS sub-based finances (with deferred revs), while they are usage based in their own. They didn’t bother including SigSci in any of their called out metrics because of the diff accounting.
If you continue to hold, I wish you the best, and ultimately find them an exciting story in an amazing next-gen computing paradigm in early innings. But this is not a well executing machine currently. The new CRO has some work to do.