Fastly Inc (FSLY)

Fastly Inc. Stock Overview: November 2023

Company Profile:

History and Background: Established in 2011 in San Francisco, California, Fastly Inc. (FSLY) is a cloud-based platform provider focused on edge computing and content delivery network (CDN) services. The company's core mission is to deliver high-performance websites and applications by leveraging a network of globally distributed edge servers.

Core Business Areas:

• Edge Computing: Offers edge computing services like serverless computing, dynamic acceleration, and global load balancing.
• Content Delivery Network (CDN): Delivers high-performance content delivery through a global network of edge servers.
• Video Delivery: Provides video streaming optimization and delivery solutions.
• Security Services: Offers edge-based security solutions like DDoS mitigation and waf (web application firewall).

Leadership Team:

• Joshua Bishop (CEO): Extensive experience in technology companies like Rackspace and Citrix.
• Doyle Velocci (COO): Previously held executive roles at Cisco and VMware.
• John Dickey (CFO): Possesses strong background in finance with previous roles at Oracle and SAP.

Top Products and Market Share:

Top Products:

• Fastly CDN: Offers global content delivery with features like dynamic site acceleration, image optimization, and video streaming.
• Compute@Edge: Serverless computing platform that enables developers to deploy code and run applications at the edge.
• Web Application Firewall (WAF): Protects web applications from various online attacks.

Market Share: In the CDN market, Fastly holds a global market share of approximately 3.5%. Major players like Cloudflare (NET) and Akamai Technologies (AKAM) dominate the CDN market, with respective market shares of 18% and 40%.

Product Performance and Market Reception: Fastly's CDN and edge computing products have received positive feedback for their performance, scalability, and security features. However, the company's relatively smaller market share compared to competitors highlights the intense competition in the CDN space.

Total Addressable Market:

The global CDN market is expected to reach $22.6 billion by 2027, driven by the increasing demand for high-performance digital experiences, cloud adoption, and growing video content consumption. This indicates a significant market opportunity for Fastly to capture additional market share.

Financial Performance:

Revenue: Q3 2023 revenue reached $124 million, with a year-over-year increase of 12%.

Net Income: The company incurred a net loss of $12 million in Q3 2023 compared to a net loss of $40.6 million in the same quarter of 2022.

Profit Margins: Gross profit margin stood at 60%, while operating margin remained negative at -12%.

Earnings per Share (EPS): EPS for Q3 2023 came at -$0.22, compared to -$0.72 in Q3 2022.

Cash Flow and Balance Sheet: Fastly held $270 million in cash and equivalents as of September 30, 2023. The company's current liabilities exceeded its current assets, highlighting the need to improve financial stability.

Dividends and Shareholder Returns:

Dividends: Fastly does not currently pay dividends, as it prioritizes reinvesting profits back into growth initiatives.

Shareholder Returns: FSLY stock returned -40% over the past year and -20% over the past five years.

Growth Trajectory:

Historical Growth: Despite revenue growth in recent quarters, Fastly has struggled to translate this into sustained profitability.

Future Growth Projections: The company expects continued revenue growth in the coming quarters, with a target of reaching $650 million in annual recurring revenue by 2025.

Growth Initiatives: Fastly's growth strategy involves expanding its edge cloud platform, investing in product innovation, and attracting larger enterprise customers.

Market Dynamics:

The CDN market is characterized by intense competition, with major players like Cloudflare and Akamai dominating the space. Additionally, the emergence of new technologies like edge computing poses both opportunities and challenges for players like Fastly. The company needs to continuously adapt and innovate to maintain its competitive edge.

Competitors:

• Cloudflare (NET)
• Akamai Technologies (AKAM)
• Amazon CloudFront
• Google Cloud CDN
• Verizon Media Edge Compute

Recent Acquisitions (Last 3 Years):

• Signal Sciences (2021): A web application security company acquired for $775 million to strengthen Fastly's security offerings.
• XyMax (2021): A network optimization company acquired for an undisclosed amount to enhance Fastly's edge network capabilities.
• Runtime (2020): A serverless computing platform acquired for $28 million to bolster Fastly's Compute@Edge offering.

These acquisitions demonstrate Fastly's strategic focus on expanding its product portfolio and enhancing its value proposition for customers.

AI-Based Fundamental Rating:

Based on an AI analysis incorporating factors like financial health, market position, and future prospects, Fastly receives an overall fundamental rating of 5.5 out of 10. While the company exhibits growth potential and strong technological offerings, its financial performance and competitive landscape pose challenges that require addressing.

Sources and Disclaimers:

The data used for this analysis is derived from Fastly's financial statements, investor relations website, industry research reports, and news articles.