Taking a quick look at Fastly

Investment Analysis Clubs Saul’s Investing Discussions
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Fastly. There has been speculation that the new management is doing, and will continue to do, a lot better than the last group. I was willing to take a look. Here’s a summary from SA that I will pick apart :grinning:

" Fastly shares surged more than 19% on Thursday after the cloud computing services provider reported second-quarter results that topped estimates and raised its full-year guidance, resulting in praise from Wall Street.

For the period ending June 30, Fastly lost an adjusted 4 cents per share as revenue rose 19.8% year-over-year to $122.8M. Analysts were expecting the company to lose 10 cents per share on $118.11M in revenue.

Saul here: Revenue was a 4% beat. We’d expect a company we are following to beat by more than that since everyone estimates low.

It ended the period with 3,07 customers, down 28 from the first quarter, but 551 of those customers were high-spending enterprise customers, as it added 11 during the period.

Saul here: Down total customers, and enterprise customers up all of 2% on the quarter. Whoop-dee-doo. Is that worth a call-out.

On average, enterprise customers spent $818,000 in the second-quarter, up 3% sequentially.

Several Wall Street analysts praised the results, including KeyBanc Capital Markets analyst Tom Blakey, who said the results were solid and the company looks “well positioned to gain share in content delivery.”

Piper Sandler analyst Jim Fish, who has a neutral rating on Fastly , said the turnaround from the new management team is going “fairly smoothly” … etc

Looking ahead, Fastly ([FSLY] sees third-quarter sales between $125M and $128M, above the $127.06M consensus estimate at the mid-point.

Saul here: That’s wrong! The midpoint of 125 and 128 is 126.5 which is slightly below the consensus estimate they gave, and certainly not worth a call-out.

The company also boosted its full-year revenue outlook, as it now sees sales coming in between $500M and $510M, up from a prior range of $495M to $505M.

Saul here: Let’s see, a $5 million raise on $500 million. That’s all of a 1% raise. Barely enough to call it a raise.

Saul here. Did anyone see anything worth a 19% surge on a company that’s already way off its bottom because of hiring new management. I’m not saying they won’t do well in the medium to long term, but i didn’t see anything jump out at me in the present.

Saul

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Great numbers analysis from Saul, but I’d like to add a couple thoughts on the business:

  1. CDN (Content Delivery Network) is a mature, not a growth, market. Akamai’s been doing it for over a couple decades and Cloudflare even has a free tier. So, gaining market share means, for the most part, stealing customers from other services that are doing a good job for most CDN applications.

  2. Edge Computing had a lot of hype a few years ago, but not only is it arguable providing compute at the edge of the cloud isn’t “real” edge computing since true endpoint devices (from phones to IoT have grown more capable every year), but Fastly’s solution, while it has some technical advantages, came to market years late. Cloudflare has even recently added AI processing capabilities to Workers (its edge computing platform).

So, there isn’t anything to get excited about. Fastly’s not participating in a growth market and what was thought to be an upcoming growth market has not and probably will not achieve the previous hoped-for level thanks to improved hardware. Competition for both markets is well established. Finally, as Saul showed us, its company performance is just less bad than before.

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I found the 20%+ pop after the ER excessive and sold my shares but I remain a big fan of Nightingale. And he seems to be adding elite people - just signed the CMO from Checkpoint who did a solid re-brand there, and the former CISO of Mozilla who worked on cyberterror with Homeland Security and is a Stanford grad/researcher. This team is exceptionally strong. Funny that 20% growth, subscription revenue, high retention rates, half a billion in revenue is “less bad.” But I’m not here to quibble - it’s 100% NOT a Saul stock as the numbers just are not there. My prediction is with Fastly like it is for the Washington Football team - after better management comes in, logic dictates the numbers should follow.

Smorg - they seem to be putting a ton of effort into security. Just put out a research paper on it, last two hires have major experience in security and most reviewers seem to laud their purchase of Signal Sciences. This suggests new CEO Nightingale is well aware of your take on CDN/Edge computing though he also touts their speed as key to supporting streaming video, which we all know is growing exponentially. They are also working with Data Dog and tout their observability. Curious if you have an opinion how their work in security could fuel growth. Thx Smorg and Saul - your candor and conviction are always appreciated.

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The Signal Sciences acquisition was almost 3 years ago. And, I think it basically got Fastly to par with Cloudflare on security. But again, this is just for stuff hosted on their respective CDNs. Even if Signal Sciences is a better WAF (Web Application Firewall), is that enough to get people to switch? IMO, mostly not.

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