NET vs FSLY: Which is better?

When there’s more then one company operating in the same space, trying to solve similar problems there’s a big challenge for the investor. That’s deciding where to invest? The problem becomes even trickier when both the companies seem to be doing pretty good! Finally, the problem becomes really hard to solve when it’s not easily understandable how they differ in what the’re offering ( with so much overlap :slight_smile:).

If you’ve read some of my previous posts, you probably know that Cloudfare ( NET ) is a company I’m invested in. The reason for my investment is very simple… working with big data and the cloud offer many challenges like security, monitoring, analyzing. However, one of the biggest challenges of big data and cloud applications that goes a little unnoticed is…moving data around and making data and applications available from a point as near to the end user as possible ( edge computing) . That’s a very costly task in both time and bandwidth. And that’s precisely the problem that NET is solving with their CDN. It’s said that around 10% of the world’s internet traffic is moving through Cloudfare!

When things are looking real promising for NET as even more businesses are digitizing and moving to the cloud trying to reach a global audience you start noticing… Fastly (FSLY) in the rear view mirror :slight_smile:

At this point I want to take a pause and thank Bear for a very insightful write-up on FSLY.
https://discussion.fool.com/why-i-bought-fsly-34514084.aspx

and muji for the deep dive on Cloudfare.
https://discussion.fool.com/cloudflare-net-deep-dive-34417701.as…

So what’s the difference between FSLY and NET? They both seem to be CDN (content delivery network) providers. They both have DDoS (distributed denial-of-service attack) protection and their own share of raving fans.

The answer seems to lie in their primary focus:

NET: Trying to build a better Internet which is secure, fast and reliable. Cloudfare has focused on security right from the beginning ( It was in 2015 when I was researching on security of websites and stumbled upon Cloudfare). The work they do is quite incredible with data centers in over 200 cities around the world.

FSLY: Trying to redefine content delivery ( high performance). They have focused their efforts on placing fewer, more powerful POPs( points of presence ) with solid-state drive (SSD) powered servers building a blazing-fast network that requires less hardware to deliver comprehensive global reach. At 35.4 microseconds, Fastly’s environment is supposed to offer a 100x faster startup time than other offerings on the market.

Market Share: Fastly has a higher share of enterprise customers while Cloudfare has way more free users. They both have common customers like Shopify ( which shows that they can exist side-by-side).

Without going into more techspeak about how their edges work, I would like to summarize it as follows…

If I had a business with users/customers world-wide, I would go with FSLY if my users/customers would need to see any changes I made to my service instantaneously ( i.e. with the minimum amount of delay). Think about an online shopping scenario where you see an item in stock and add it to your cart and upon checkout there’s a message saying it’s out of stock…quite frustrating… It would be better to let the customer know about the available inventory when adding to the cart.

On the other hand, if my business was a website that has a lot of static content ( like images) that don’t change too often and the content gets updated every now and then ( but not continuously), NET would be my choice. Mainly due to their focus on security.

There’s also a possibility that I would use both FSLY and NET to address different parts of my business/service.

Of course pricing would be a major factor but I don’t want to go into that. NET bundles a lot of security in it’s offerings and also ways to save on bandwidth which I see as advantages.

Here’s an example of how a company is using both FSLY and NET. These are testimonials from Shopify…

“Black Friday is one of the most important days for our merchants every year, and 2019 was the biggest of them all, with consumers around the world shopping more than ever. With the support of Cloudflare, we were able to handle the demand during this shopping season and deliver lightning-fast responses to shoppers globally."

— Charles Ng
Production Engineering Manager, Shopify

“We chose Fastly for the enhanced visibility, increased control, and ultimate flexibility. Fastly is allowing us to be more portable than any other CDN we’ve worked with.”

Dale Neufeld, Director of Technical Operations

Conclusion: Some years back when SaaS wasn’t such a common term, I was engaged in moving our on-premises service to the cloud. During that time, some of my geeky friends and I used to have a lot of discussions around bottle necks surrounding big data and the cloud; challenges around security, monitoring, analyzing and specially moving and serving big data. And the companies that were actively working to solve those problems became my favorites… like OKTA, NET, DDOG, AYX and I’m invested in all of those names. Both NET and FSLY are solving some very important problems related to data and the cloud, so I added FSLY in my portfolio recently. I’m not a fan of investing in any second fiddle but it’s too early for me to see who’ll be the winner in this enormous market opportunity. I see a great runway ahead for both NET and FSLY.. So I’ve invested in both NET and FSLY and will wait and watch carefully. It’s pretty early to guess who’s gonna play the second fiddle.

Hope you find it helpful!

Cheers!

ron

Here’s a good article: https://seekingalpha.com/article/4348980-fastly-customer-gro…

119 Likes

Great thread. I own both as well. This is an industry with massive growth opportunities ahead and NET and FSLY are both positioned to benefit greatly.

Another interesting article by same author with a focus on NET, which he appears to be long on.

https://seekingalpha.com/article/4348730-cloudflare-thinking…

Great post, Ron!

I’ve invested in both as well. What I’d like to mention is:

  1. This sector appears to be rapidly growing and it looks not like winner-takes-all market as it has different segments. Hence, more than 1 players could be successful and provide great returns to shareholders.

  2. NET historically has focus on small and mid-sized companies and FSLY on mid to enterprise clients.

  3. Net sells more standard packages of service and FSLY is more customize-able.

  4. There is big difference in GM for both companies - mid 50 for FSLY vs mid 70 for NET. Relatively low GM initially scared me of FSLY and even now I’m a bit worrying about that. On the other hand, as I think Bear mentioned in the other thread FSLY expects to increase GM and hopefully the trend will continue.

  5. My main reason of investing in FSLY is that - as it looks now for me - FSLY has had an inflection point in revenue growth. On average in past quarters Net was growing around 50% yoy and FSLY around 40% yoy. What happened now - FSLY expects acceleration to 50% grow - and NET does not expect such acceleration - based on latest reports and calls. So, this is what I call inflection point. IF FSLY can keep this momentum and move from roughly 40 to 50% growth, then there will be valuation re-rating (already has been, but hopefully will continue). Now on forward bases NET trades at roughly 20 P/S and FSLY 14. Yes, GM plays a role here, but the thesis is expansion of GM for FSLY.

Let’s hope the FSLY thesis plays out (as well as NET) :slight_smile:

Best,
V

14 Likes

Here’s an example of how a company is using both FSLY and NET. These are testimonials from Shopify…

Thanks for that, Ron. I found a link with the Fastly quote from Shopify’s Dale Neufeld. https://www.fastly.com/customers/shopify

Neufeld also said: We really like the fact that we can write our own VCL and fully control the experience on Fastly. If we need to deploy a hot-fix or revert a change, we have the power and control to fix it ourselves. That’s huge for us. With our former provider, we always had to engage our assigned customer support engineer to have changes made.

Do you happen to know if Cloudflare allows customers to do this?

Thanks,
Bear

They have focused their efforts on placing fewer, more powerful POPs( points of presence ) with solid-state drive (SSD) powered servers

Ron- thank you for your post. I had a question about Fastly- why couldn’t some competitor come in and establish PoPs of their own with SSD-powered servers?

1 Like

‘does NET allow for customization of VCL?’, Bear

I am not a developer; but, after reading through both Fastly’s and Cloudflare’s developer kits: Cloudflare has a ‘Templet Gallery’ and Fastly appears more customizable but requires more coding experience.

Bert did say that Cloudflare is more set to provide for ‘Startups and SMB’s’. Aside from the Freemium model, Maybe that’s what he was also saying?

Proffringa, did also say he was invested in Fastly instead of NET due to his being a former CTO, his being able to explain how Fastly is more developer focused, and not as well versed in Security, his not being as able to explain how Cloudflare could beat Zs, ‘if that’s a thing’.

Am I just muddying the story here? Apologies to BroadwayDan😔. I did permanently save his post on story, loved it.

Jason

thanks for this, amazing comparison. I think both make good investments going forward with lots of longterm tailwinds

in comparing the two, FSLY has smaller market cap, with a lower forward sales valuation, but is guiding to higher revenue growth in 2020 than NET. FSLY also has better operating and net margins despite a lower GM. (Their Compute@Edge is in beta but purportedly has better margins that will start to show up in 2021)

1 Like

Bear:
Here’s an example of how a company is using both FSLY and NET. These are testimonials from Shopify…

Thanks for that, Ron. I found a link with the Fastly quote from Shopify’s Dale Neufeld. https://www.fastly.com/customers/shopify

Neufeld also said: We really like the fact that we can write our own VCL and fully control the experience on Fastly. If we need to deploy a hot-fix or revert a change, we have the power and control to fix it ourselves. That’s huge for us. With our former provider, we always had to engage our assigned customer support engineer to have changes made.

Do you happen to know if Cloudflare allows customers to do this?

That’s a great find Bear. It’s probable that Neufeld is talking about replacing NET with FSLY. If that’s the case, it must’ve happened recently since they were using NET until the end of 2020 and does affirm the trend of more enterprise customers ( who have in-house software developers with knowledge of VCL - Varnish Configuration Language ) preferring FSLY.

The more developer friendly any software/service is the less developers need to rely on support. FSLY being more dev focused compared to NET does have advantages (things like being able to work more actively with headers, cookies, caches etc). NET appears to have a great web UI (user interface) which keeps the learning curve low ( and you don’t need devs who know VCL :)). So in a way it comes down to how much you would like to control a service vs how much you want the service to do for you. So, lot’s of pros and cons…

AVandelay:
They have focused their efforts on placing fewer, more powerful POPs( points of presence ) with solid-state drive (SSD) powered servers

Ron- thank you for your post. I had a question about Fastly- why couldn’t some competitor come in and establish PoPs of their own with SSD-powered servers?

Keep in mind that FSLY’s edge cloud platform that provides content delivery network, Internet security services, load balancing, and video & streaming services has been build over the last 9 years. There’s a lot of code that has been written to get all that in place and working. So, yes while anyone can come up with another solution it looks like FSLY is a few laps ahead already.

Cheers!

ron

11 Likes