What they do: SaaS edge cloud platform, designed to help developers extend their core cloud infrastructure to the edge of the network, closer to users. The purpose seems to be speed (as the name suggests), but I believe there are security features and implications as well. I have only begun to look into it, so consider this a not at all thorough description.
Mkt Cap: $4.0 Billion (95.4 million shares outstanding)
TTM Revenue: $218 million
PS ratio: ~18
Revenue Growth in most recent quarter: 38%
NRR most recent quarter: 133%
GM in most recent quarter: 56.7%
TTM Cash Flow: -$31 million in 2019, -$7.1 million in Q1 this year
Cash: $187 million
We can see that this is a very small company with a reasonable PS ratio, but that revenue growth is slower than we’d want (but wait). Gross margin is also low for a SaaS company, and they are losing a lot of money each year, but only a fraction of the cash they have on hand, so they’re not in trouble. But basically, the numbers to date look meh, so we would have to see some extraordinary trends moving positively to have much interest here.
Spoiler alert: that’s exactly what we’re going to see.
IMPORTANT TRENDS AND OTHER SPECIFICS TO HIGHLIGHT:
YoY Revenue Growth
Jun 2019 Q: 34%
Sep 2019 Q: 35%
Dec 2020 Q: 44%
Mar 2020 Q: 38%
Jun 2020 guidance: 52% - 56%
So this is a big time acceleration. They also raised full year guidance from $265 million to $290 million at the high end. They mentioned, As social distancing measures increased over the March period, we continue to see increased traffic across the internet and our platform, which certainly provides an additional boost to our results. They said a couple times that this quarter only included 2 weeks of the benefit (for obvious reasons). In short, this next quarter is going to be huge for them, and that trend should continue thereafter. Their 56% guide is surely conservative, so just imagine.
Jun 2019 Q: 55%
Sep 2019 Q: 55.2%
Dec 2020 Q: 56.7%
Mar 2020 Q: 56.7%
They don’t provide guidance on gross margin, but it’s about to go up big time. Their language is very formal: Despite the uncertain economic environment, we remain confident in our ability to deliver incremental annual gross margin expansion as we continue to scale and deliver innovative security and edge computing solutions. But the translation is that margins are going to soar. There were a lot of questions about their huge guidance raise and what gross margin it implied. One analyst said when you look at the remainder of the year, the guidance seems to imply…close to 80% operating margins. I don’t know if he’s correct, but they didn’t argue with him.
INTERPRETATIONS AND CONCLUSIONS
This is an unprecedented acceleration for them. Fastly is built for digital transformation, so they’re thriving in this environment.
Their customers are huge for them. The CEO said like 10 times on the call that Fastly is the platform for innovators. Fastly is usage-based, and their customers are growing like mad, so Fastly grows like mad with them. Online shopping in Q4 is huge for them.
Their new CEO is a rock star. The founder and old CEO was on the call, but these guys are just night and day as communicators. They made a great hire. Listen to the call.
I’m psyching myself up about this company. The stock is down a little this morning because most things are, and also maybe because FSLY is wisely offering 6 million shares to raise capital. I’m taking advantage of the dip and buying a lot more.