FSLY Tik Tok Fear

What really jumps out at me reading through Fastly’s results is the deceleration of new wins of Enterprise customers. Enterprise customers make up 88% of Fastly’s revenue, and Fastly’s QoQ growth can therefore be put down largely to the increased spending of these Enterprise customers (DNBER of 137% up from 133% in Q1 20, average Enterprise customer spend of $716,000 versus Q1 $642,000). My understanding is that the increased usage has driven this increased customer spend to date, but that usage levels will be flat going forwards based on their full year guidance.

All good so far. However the number of Enterprise customers is as follows:

Q2 19: 262
Q3 19: 274 (+4.6%)
Q4 19: 288 (+5.1%)
Q1 20: 297 (+3.1%)
Q2 20: 304 (+2.3%)

Clearly the number of customers is not the be all and end all, depending on each customer’s relative size (for example signing a significant customer Shopify or TikTok is more meaningful than a SME) however the broader question remains why they only managed to sign 7 new customers in the last quarter despite there being an ongoing “demand for our mission critical services” and what is the significance of that. Is there a lag from signing a new customer to getting it up and running and recognising revenue perhaps? My concern would be a slowdown in signing up new Enterprise customers, Fastly’s core revenue stream, coupled with usage flat to current levels (as implied with their FY guidance) might not lead to the kind of growth rates that many of us are hoping for.

Working in Finance selling IOT to Enterprise customers I can attest that new business has not been easy to come by the last quarter, and perhaps Fastly is feeling that too despite their Covid usage tailwinds to date and their product which is ‘mission critical’ for many businesses.

Therefore while Tiktok at ~12% of Enterprise revenue would be certainly a risk, I am more concerned about the continued growth of new Enterprise customers as a whole if we can assume the usage tailwinds are now running at run-rate. Appreciate any thoughts on what is going to continue to accelerate Fastly’s growth from here, perhaps before ‘Compute Edge’ becomes realisable.