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Fastly's Network Capacity Has Almost Doubled Year Over Year

By Daniel Sparks – Jun 19, 2020 at 6:35AM

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Management's guidance for huge growth and the company's step change in network capacity suggest this edge computing specialist is in its early innings.

Earlier this week, edge computing platform provider Fastly (FSLY 0.74%) announced that its installed global network capacity had crossed 100 terabits per second (Tbps). The achievement represented a major influx of network capacity and highlights the company's aggressive investments to capitalize on the growth opportunity in front of it.

Here's a closer look at why hitting 100 Tbps of global-network capacity is so notable for the edge computing specialist.

A diagram showing three laptops connecting to a cloud

Image source: Getty Images.

A step change in network capacity

For growth stocks like Fastly, investors should look beyond recent figures and assess sequential and year-over-year growth rates for greater context. When investors zoom out and look at the company's network-capacity growth since its initial public offering last year, they can put the company's recent investments into perspective.

In the company's S-1 filing, ahead of its initial public offering in May of last year, Fastly said it finished its first quarter with a 45-terabit edge network. In the following quarter, Fastly added 7 Tbps of edge capacity, and during the third quarter of 2019, network capacity grew by 6 more Tbps to 58 Tbps. But growth really started to pick up in the fourth quarter of 2019 and first quarter of 2020, when Fastly's network capacity grew to 74 Tbps and 88 Tbps, respectively.

All of this means Fastly's network capacity grew by an incredible 96% year over year in the first quarter of 2020.

Now, Fastly is saying it's achieved an edge network capacity of 100 Tbps with about two weeks left in its second quarter, putting network capacity up 35% from the beginning of the year.

Management is certainly putting its money where its mouth is. "[W]e're in the early innings of a gigantic market," said Fastly CEO Joshua Bixby in the company's first-quarter earnings call when discussing the company's investments in growth opportunities. The way Fastly is building out its network capacity certainly suggests management is confident in the long-term demand potential for its platform.

Investing ahead of a spike in usage

Anyone who has taken some time to appreciate Fastly's recent outlook for revenue in its second quarter and the full year likely isn't too surprised by the company's continued aggressive investment in network capacity. With an infrastructure-as-a-service model that earns revenue based on platform usage, management's outlook for accelerated top-line momentum suggests the company expects a jump in platform usage from its customers.

In the company's most recent quarter, management said it expected its second-quarter revenue to be between $70 million and $72 million, implying a year-over-year revenue growth rate of 57% -- a significant acceleration from 38% revenue growth in Q1. Management said this view reflects increased internet traffic from social distancing measures and continued customer expansion on its platform -- two catalysts it expects to persist beyond the current quarter.

For the full year, Fastly gave its revenue guidance a huge lift. Management now expects 2020 revenue between $280 million and $290 million, up from a previous forecast for revenue between $255 million and $265 million.

Both Fastly's guidance and the pace of its investments in network capacity suggest the company truly is in its early innings.

Daniel Sparks owns shares of Fastly. The Motley Fool owns shares of and recommends Fastly. The Motley Fool has a disclosure policy.

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