Key Points
- Fastly met its revenue guidance for Q2 2024, reporting $132.4 million.
- The company experienced significant net losses, with GAAP net loss at $43.7 million.
- Customer growth was positive, with enterprise customers increasing by 24 to a total of 601.
Fastly (FSLY -0.52%), a global content delivery network (CDN) and cloud services provider, released its second-quarter results on August 7, 2024.
The company reported revenue of $132.4 million, an 8% increase from $122.8 million year-over-year, which met the midpoint of its prior guidance. However, Fastly continued to struggle with cost management, recording a net loss under generally accepted accounting principles (GAAP) of $43.7 million, a substantial increase from the $10.7 million loss reported in the second quarter of the previous year.
While the quarter showed revenue growth and a boost in customer acquisition, the significant net losses and demand challenges from key customers tempered the overall positive outlook.
| Metric | Current Period | Guidance for Q2 | Prior Year Period | % Change YoY |
|---|---|---|---|---|
| Revenue (millions) | $132.4 | $130.0 - $134.0 | $122.8 | 7.8% |
| Gross Margin (GAAP) | 55.1% | N/A | 52.3% | 2.8 pp |
| Net Income (Loss) (millions, GAAP) | ($43.7) | N/A | ($10.7) | N/A |
| Enterprise Customer Count | 601 | N/A | 551 | 9.1% |
Source: SEC filings. Expectations based on management's guidance, as provided in 2024-05-01 earnings report. PP = percentage points.
Overview and Business Description
Fastly operates a real-time content delivery network that enables rapid loading of websites and applications. The company’s services focus on providing secure, efficient, and programmable edge cloud solutions. Fastly's primary revenue streams are network services and security services, with the former contributing $104.2 million, growing 6% year-over-year, and the latter contributing $25.4 million, growing 13% year-over-year in Q2 2024. The recent quarter was marked by a push in customer acquisition, but also brought challenges with managing costs and increased losses.
Currently, Fastly's key success factors involve customer expansion, technological innovation, and improving operational efficiency. The company is devoting resources to enhancing its edge and focusing on more robust security solutions. Customer growth strategies are crucial for sustaining revenue growth, particularly in large enterprise client segments.
Q2 2024 Financial and Operational Highlights
Fastly's second-quarter revenue saw an 8% increase year-over-year, reporting $132.4 million. The network services sector generated $104.2 million of sales, up from $98.5 million in the year-ago period, while security services rose 13% to to $25.4 million. Despite this growth, the quarter also highlighted areas of concern. Fastly's GAAP net loss expanded to $43.7 million from $10.7 million the previous year, which pointed to substantial operational and financial hurdles.
Gross margins improved, with GAAP gross margin reaching 55.1%, an increase of 2.8 percentage points from the previous year’s 52.3%. Similarly, Non-GAAP gross margin showed an improvement, rising to 58.5% from 56.6%. These margin improvements indicated better cost management related to direct expenses and efficiencies within infrastructure costs.
On the customer front, Fastly's enterprise client count grew by 24 from the previous quarter, totaling 601, showing a 4% sequential increase. The total customer base saw a modest increase, growing from 3,290 to 3,295. Though the last twelve months' net retention rate (LTM NRR) fell to 110% from 114%, indicating some churn or reduced customer spending, the growth in enterprise customers highlighted effective customer acquisition strategies.
An additional area of concern was the decrease in (RPO). RPO fell 2% to $223 million from $227 million in Q1 2024, suggesting reductions in long-term contract commitments.
Additionally, Fastly's innovation efforts focused on launching new AI-driven products and improving security services. For instance, the beta version of Fastly AI Accelerator aimed to enhance application performance powered by ChatGPT. Fastly's security offerings were bolstered with enhanced bot management tools, illustrating its commitment to continuous product enhancement.
Looking Forward
Fastly’s management provided revenue guidance for Q3 2024 between $130.0 - $134.0 million while adjusting full-year 2024 revenue guidance to $530.0 - $540.0 million, down from the previous $555.0 - $565.0 million. This downward adjustment reflects the company's cost realignment efforts and current demand challenges.
Non-GAAP operating loss guidance for Q3 2024 was set between ($12.0) - ($8.0) million while full-year 2024 Non-GAAP operating loss was adjusted to a range of ($33.0) - ($27.0) million. Additionally, Non-GAAP net loss per share guidance for the third quarter was set at ($0.08) - ($0.03), and for the full year, it was adjusted to ($0.16) - ($0.11) per share.
Investors should watch for Fastly’s ongoing efforts in customer acquisition, especially among enterprise clients, as well as further enhancements in its edge cloud platform and security services. Management's focus on innovation and operational efficiency will be key to navigating the competitive landscape and addressing financial challenges in forthcoming quarters.
