Fastly (NYSE:FSLY) has been generating impressive revenue growth over the last several quarters. And with its innovative solutions, the company remains positioned to profit from the expanding content delivery network (CDN) and edge computing markets it addresses. What's more, the stock is trading at a more than 40% discount compared with its October all-time highs. Yet Fastly's rival Akamai Technologies (NASDAQ:AKAM) represents a better investment opportunity despite its lower top-line growth.

Attractive CDN and edge computing markets

Both CDN specialists Fastly and Akamai make the internet faster. With their worldwide computing infrastructure, they host and deliver internet content closer to users to improve user experience.

That business is poised to thrive. Given the secular increase in internet traffic, research company Mordor Intelligence estimates the CDN market will grow at a compound annual compound rate (CAGR) of 27.2% by 2025 to $49.6 billion.

In addition, Fastly and Akamai propose extra services that leverage their computing capabilities. For instance, customers can develop dynamic content at the edge of their networks for personalized features such as user authentication and content recommendation. Also, their infrastructure between internet users and the content they host allows them to offer cybersecurity services and block hostile web traffic.

As an illustration of Fastly's and Akamai's expanding businesses, Fastly estimates these extra edge computing and cybersecurity capabilities will add $17.9 billion to its total addressable market (TAM), which should reach $35.4 billion by 2022.

Illustration of a telecommunication network above a city

Image source: Getty Images.

Fastly's strong growth

Fastly seems to profit from its growing markets. During Q3, revenue increased 42% year over year to $71 million despite reduced traffic from its year-to-date largest customer, ByteDance's TikTok, because of political uncertainties. And management forecast Q4 revenue to grow by 26% year over year (YoY), excluding acquisitions.

In addition, Fastly just launched its edge computing solution Compute@Edge into production (with limited availability), which should unlock some extra revenue growth going forward. Also, it is ramping up its cybersecurity offerings by integrating the cybersecurity specialist Signal Sciences, which it recently acquired. The move should trigger cross-selling opportunities with its existing CDN solutions. 

However, given its reduced scale, Fastly has yet to become profitable. Q3 losses reached $23.8 million compared with $12.2 million in the prior-year quarter, as the company prioritized growth to scale and capture the opportunities its expanding markets offer.

As a result, Fastly stock is trading at a high price-to-sales ratio of 27.9, which suggests the market expects solid execution over the long term with spectacular revenue growth and improving margins -- a risky proposition.

Akamai's large scale

Fastly and Akamai compete in the same CDN, edge computing, and cybersecurity markets. However, they operate on a different scale.

Akamai was founded 13 years before Fastly, in 1998, which gave it more time to expand its network across more than 4,100 points of presence. In comparison, Fastly listed 68 points of presence at the end of last year.

Akamai's vast network allows faster access to content that is hosted closer to users, but it also comes with challenges. For example, Fastly's smaller infrastructure allows quicker updates of content across its whole network.

Yet Akamai proposes competitive offerings. For instance, the research outfit Gartner ranked Akamai's web application firewall (WAF) -- an important cybersecurity feature to protect websites -- as a leader based on its ability to execute and completeness of vision, far ahead of Signal Sciences' solution.

From the financial perspective, Akamai's scale represents a drag to its top-line growth compared with Fastly. During the third quarter, revenue grew 12% YoY to $793 million. And management expects revenue to grow by 6% during the fourth quarter, based on the midpoint of the guidance range.

On the bright side, Akamai's scale involves reduced costs and better profitability, though. In contrast with Fastly's losses, Akamai's operating margin reached 23% during Q3, up from 20% one year ago. That huge difference in profitability between both CDN players is due to Akamai's lower sales and marketing and research and development expenses as a percentage of revenue thanks to its larger revenue base.

FSLY Revenue (Quarterly YoY Growth) Chart

FSLY Revenue (Quarterly YoY Growth) data by YCharts

In any case, Akamai's price-to-sales ratio of 5.1 pales in comparison to Fastly's 27.9. Granted, Fastly's superior revenue growth commands a higher revenue-based valuation multiple. But such a valuation gap doesn't reflect Akamai's high margins. In addition, Akamai's price-to-earnings (P/E) ratio of 28.6 seems reasonable in the context of double-digit annual revenue growth.

Thus, given these elements, Akamai represents a better bet than Fastly for investors looking for a growth stock exposed to the attractive CDN, edge computing, and cybersecurity markets.