“it’s pretty impressive that revenue is growing as fast as it is without bringing on lots of new large customers. Also very strong for increased Enterprise customer spend jumping up to $716k”
I guess my point is that a spike in usage (due to Covid) has driven this QoQ acceleration and increase in customer spending. But now that usage is at ‘peak’ levels presumably, what is going to continue to accelerate this growth going into Q3. They beat Q2 estimates due to a spike in usage, but how are they going to beat Q3 estimates.
Perhaps their forecasting flat in Q3 & spike in Q4 due to seasonality (thanks Rafe’s modelling post no. 70339) is realistic
Personally I was actually hoping for more of a usage driven spike in customer spend than we’ve seen, given the spikes in traffic from PINS, Shopify, Amazon, TikTok & Etsy that we’ve seen recently. All things being equal increased usage = increased revenue, albeit not at a 1-1 correlation. Perhaps I (and others) had overestimated this correlation. These customers had their traffic explode this quarter, I was expecting a similar explosion of Fastly, and in my opinion an acceleration to 62% YoY growth (while in isolation is healthy) was at the lower range of my expectations - and is probably why the market has reacted the way it has. It was priced in.
Ultimately I am happy with 62% growth this quarter despite these increased expectations, the key for me is understanding its growth acceleration going forwards.
“They mentioned this number includes a number of customers who dropped out of the category because they were in covid affected verticals”
Agree that churn will offset some of this new business, and that if they were losing some ‘small fry’ to focus on larger higher quality customers that might be no bad thing. Is there any information available over how much revenue they lost through churn vs how much brought in through new business? And what is their strategy on new business, is there a focus on signing up larger Corporate clients on bigger contracts?
Another factor to consider is whether they have been offering incentives/discounts to stimulate new business growth. Perhaps I am misunderstanding their business model, but I was expecting the spike in traffic from its customers & usage to indicate that there would be an inherent demand for their services, perhaps even a backlog. Other factors include what is the lead time from signing a new customer to fully on-boarding them on their platform, and are customers signed with any minimum revenue commitment or is it entirely usage based (which could be a risk, of which the upside seems capped based on the above explosions of traffic/revenue correlation). For example, signing up Shopify might not mean that the benefits of Shopify’s usage have been fully realised yet, or is Fastly already responsible for 100% of Shopify’s traffic.
Put simply, I see Fastly’s core revenue as follows:
No. of Enterprise customers x DNBER + new Enterprise customers
So if we are saying that the growth of DNBER is due to increased usage, but usage is to remain flat to current levels going forward, and that the number of new Enterprise customers is slowing - this represents a risk to me.
Perhaps I am underestimating how much these new Enterprise customers are worth, or misunderstanding something about their business model. It is entirely possible that they have churned low quality customers and are focusing on a few high potential customers, but I haven’t heard anything about this?
I’d just be careful not to read too much into it given we have such a small base of both customers (+12, 14, 9, 7) and quarters
I agree that in itself the number of customers is not the be all and end all, because there are gaps to be filled from my points above. It would be more meaningful if we were to understand the absolute revenue contribution from new business in each quarter, but I don’t suppose that detail is available? I feel like I could be missing something fundamental here.
Really I am trying to get an insight into whether 1. That DNBER value is likely to accelerate further (eg from selling its other services, or even increased traffic from current run-rate and 2. if there are significant new customers in the pipeline. 1&2 together should lead to the growth we want. However without 1&2 there could be a slowdown. The number of Enterprise customers, while not a determining factor in itself, could be an indicator of this.