FSLY thoughts

FSLY is a MF pick and looks like several on this board are long FSLY (and it’s up quite a bit over the last month), but I couldn’t find any posts provided any substantial insight, though I may have missed it. Interested in learning more about it. (I see it’s also down today on what’s predominantly an up day for the broader markets, so that’s interesting). I’m a big fan of cash flow, so I looked at 5 Qtr Trend of the cash flow from ops, and at first pass, it looks like this:
Q2’19,(15,648)worse from previous Q
Q3’19,(28,243) worse from previous Q
Q4’19,(31,303) worse from previous Q
Q1’20 (7,186) better from previous Q
So while it’s still negative (which is a worry, at least for me), it did improve considerably in Q1’20 and likely will improve more in Q2’20. And it satisfies many of Saul’s criterion including rapidly growing revenue (+75% EPS Growth, CFY and +54% NFY). But its debt load is significant.

For fun, I looked at OKTA’s cash flow (which is also down today, interestingly)
Q1’19, 21,262
Q2’19, 20,128 better …
Q3’19, 30,768 better …
Q4’19, 55,603 better …
Q1’20, 38,697 worse …

which is positive, but doesn’t show the Q4’19 to Q1’20 growth that FSLY showed.

both are up considerably: My question is: should earnings growth be more weighted than some of the other criteria in evaluating a company?


Hi Gary,

I was unimpressed by their free cash flow, but I think Bert in his January article somewhat explains why FSLY might not have stellar free cash flow:

  1. The company is not well known and will need to spend a lot on sales and marketing. By the time Bert was writing the article, the company spent 35% of its revenue on a GAAP basis for sales and marketing.

  2. More importantly, the faster FSLY grows, the more Points of Presence it will need to establish. Unlike many SaaS companies, FSLY does need to invest in physical infrastructure as a CDN company, and its growth requires more capex.

Looking at FCF is still a great way to evaluate a company, but I view infrastructure companies like FSLY are rare exceptions.


These are the two best deep dig articles I have seen so far for FSLY from SSI blog:

FCF is definitely a metrics we shall keep a close eye on in the next several quarters, but at a little bit more than 200M TTM revenue size, many successful SaaS companies used to show similar negative FCF as well, E.g. At the end of Jan 2019, CRWD has 250M TTM revenue and -26% FCF margin, similar to where FSLY is today. Then we know what happened with CRWD after that, revenue skyrocket with FCF improved to a mind-blowing 48% in Q1!

I am not saying FSLY has the potential to improve FCF margin as fast as CRWD, but I do see it shall improve significantly. Its adjusted EPS improved to -0.06 from -0.3 a year ago.



thanks Mike, this is great feedback! I saw some other research that suggested FSLY 5 year price target (based on forecasted growth and forecasted earnings) was in the ~$150/share range. This tells me there is some upside if their story remains compelling. Thanks again for the info!

Thanks Zoro! I checked out the two links and learned that softstackinvesting.com had some nice analyses of some other SaaS companies that have been recommended. I really liked Peter Offringa’s (very good) analysis of FSLY. I appreciated both his technical understanding of the company but also his forward looking financial assessment. He gives FSLY a 5 YR price target of ~$150, based on some reasonable assumptions for growth, which I appreciated. This is the type of information that I appreciate before deciding to take a position. Given how much FSLY has run up in recent weeks, I wouldn’t be surprised to see some of the froth come off when the COVID dynamic stabilizes, but FSLY looks like a good, long term (e.g. 5 to 10 years) investment, and that’s what I’m looking for.
Thanks again!

Keep in mind that FSLY raised Q2 and full year 2020 guidance and alluded to a new, mystery, enterprise customer at Q1 earnings. Piper Sandler and others have speculated that customer is Amazon. Dan Rayburn of Foster & Sullivan did some digging and has confirmed that Fastly is being used by Amazon for both the Amazon main website and for IMDb. Says a lot when they chose to use FSLY due to quicker response times then their own product. Bank of America/Merrill Lynch has them achieving profitability in Q4. A new revenue stream opens up by eoy 2020 driving 2021 revenue higher in the form of their new COMPUTE@Edge product offering.


Dan Rayburn of Foster & Sullivan did some digging and has confirmed that Fastly is being used by Amazon for both the Amazon main website and for IMDb. Says a lot when they chose to use FSLY due to quicker response times then their own product.

Dawgpac is correct – here’s the link: https://www.streamingmediablog.com/2020/05/fastly-amazon-hom…

Poffringa mentions this too: https://softwarestackinvesting.com/fastly-fsly-q1-2020-earni…

What I love about FSLY’s smallish revenue base and the fact that it’s a sub-$5b company is that large deals really move the needle.


Thanks Bear - I took a cut at a quick and dirty valuation, to see if Peter's assessment was in the ball park, it's shown below (sorry for the tabular eye test!).  His assessment is, in fact, very realistic, though FSLY has appreciated materially since he created the assessment. 

FSLY Evaluation	2019	2020	2021	2022	2023	2024	notes
annualized Rev Growth	40%	40%	38%	35%	32%	2020 growth rate forecast from analysts
Revenue($k) $200k   $280k 	$392k  $540k 	$730k 	 $964k 	anchored on 2020 revenue forecast and forecasted growth rate
number of shares outstanding at end of year (in thousands)	 
               94,818 	94,818  94,818 	94,818 94,818 	 94,818 	
share price at end of year	 
               $20.07 	 $46 	 $72 	 $98 	 $124 	 $150 	
Market Cap (MC, end of year, in thousands)	 
                $1,9M 	$4,4M 	 $6,8M 	 $9,3M 	 $11,8M  $14,3M 	
Debt (D, in thousands)	 
                $63k 	$63k 	 $63k	 $63k 	 $63k	 $63k 	assumed to be constant
Cash and cash equ. (CC, in thousands)	 
               $131k	 $187k 	 $187k	 $187k 	 $187k 	 $187k 	assumed to be constant, from 2020
Enterprise Value (EV = MC+D-CC, all in thousands)	 
               $1,8M	$4,2M 	$6,7M 	 $9,2M 	 $11,6M  14,0M 	
EV/R	         9	 15	 17	  17	 16	 14.5

Bank of America/Merrill Lynch (6/1/20 Buy PT $50, previous PT was $31) held a fireside chat with Fastly in the past week as part of their Global Tech/Telecom conference:

“The Enterprise/high value video market consists of live-streaming traffic (such as TV finales, SuperBowl events, etc) which has less price compression and higher-margin traffic. Fastly’s CDN technology is highly differentiated, with one of its products, MediaShield, able to sit in between the content origin and other CDNs, reducing the number of requests to the content origin, optimizing the network and providing significant cost savings. Importantly, Fastly is not only a CDN provider; the company’s programmable edge serves as its competitive moat and a building block for new compute@Edge platform, which is expected to become commercially available by the end of the year, and could serve as a tailwind in 2021.”