The edge cloud computing company Fastly (FSLY -4.40%) had an impressive year in 2020 helping businesses deliver and process information over the internet. The company continues to innovate and execute for the long-haul, and the early investments are starting to appear in the numbers. Here are four takeaways from Fastly's 2020 earnings announcement, and a closer look into what will make this company successful in the long term.
1. New products and offerings
With the acquisition of web security company Signal Sciences last year, Fastly was able to cross-sell its services to Signal Science customers and upsell Signal Sciences' products to existing Fastly customers. Security plays a critical role in the cloud computing environment. Now, Fastly can offer edge computing services and security solutions in one platform, allowing customers to fill all their cloud needs with only one vendor. The addition of Signal Sciences may be a key wedge in the sales process for Fastly that could help it gain even more traction with big businesses.
2. Rapid adoption
Edge cloud computing remains popular with industries that need to operate with as little lag time as possible. Management mentioned that Fastly saw rapid adoption of its platform among e-commerce, finance, and gaming customers.
Gaming in particular is a $151 billion industry that expects to grow 12.9% per year through 2027 , and Fastly's technology plays a vital role here. While management did not disclose tons of detail, Fastly expanded its account with a large gaming company using the edge platform to create new titles and support the launch of new consoles. It also added a leading gaming company to its customer base to help the customer's new storefront for web games.
3. The growth story continues
Fastly has consistently grown revenues at about 40% per year for the last several years. Investors saw that trend continue in the fourth quarter and full year of 2020, with revenue increasing 40% and 45% respectively compared to last year.
Along with revenue growth, non-GAAP gross margins expanded from 56.5% in 2019 to 60.9% in 2020. That margin expansion shows that Fastly has become more cost-efficient while still collecting the same, or greater, revenue from customers.
Furthermore, under new Chief Revenue Officer Brett Shirk, investors should expect to see sales increase even further. With over 25 years of technical and sales experience solely focusing on sales and marketing, Shirk should be able to provide a lot of value to Fastly's top line in the future.
4. Customer expansion
Total customer count rose to 2,084 in the fourth quarter from 2,047 in Q3 of 2020, with the addition of 11 new enterprise customers -- customers that spend greater than $100,000 in 12 months -- bringing that total to 324. While that may seem like a negligible improvement, it is essential to remember that Fastly primarily serves large businesses with experienced programming teams. Because large companies constantly need to spend on developing and improving consumer experiences, any addition of new enterprise customers can have a significant positive impact on Fastly's revenue. In the fourth quarter of 2020, enterprise customers increased their average spending on Fastly's platform to $782,000 from $753,000 in Q3. Enterprise customers accounted for 89% of total revenue in 2020, compared to 82% in 2018, so clearly, enterprise businesses can have a major impact on Fastly's top line.
More to that point, Fastly managed to retain 99% of its existing customers. Its dollar-based net retention rate reached 143% in the fourth quarter, demonstrating that existing customers continued to use Fastly and spent more on the platform compared to last year. Better yet, no customer makes up more than 10% of Fastly's revenue. This can change at any moment, but it does mean that Fastly is not solely dependent on a small group of customers.
Although investors enjoyed a great run in 2020, it's likely Fastly is just getting started. The edge computing business will only grow as more people and companies become interconnected via the internet.
The stock will be volatile in the short run, but Fastly is setting the groundwork now to be an even better company in the future. Because of these up-front investments, Fastly will likely emerge as a leader in the edge computing space.