Fastly (FSLY 1.35%) has struggled in recent months. This cloud computing company reported weak earnings in the first quarter, then suffered a serious outage in June, which slowed growth even further in the second quarter. Adding to that uncertainty, Fastly has replaced both its CEO and CFO in the last two years. Can the company turn things around?

In this Backstage Pass video, which aired on Oct. 1, Motley Fool contributors Trevor Jennewine and Jason Hall discuss what investors should watch for when Fastly reports third-quarter results on Nov. 3.

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Trevor Jennewine: Fastly's platform is what's known as an edge cloud. In the interest of time, I will explain it like this: Fastly's edge Cloud makes the internet faster. It essentially moved data closer to end users, like you and me, and that just helps accelerate and secure the delivery of content like websites, applications, streaming media. And that's important because nobody wants to wait for website to load. If it takes too long, you're probably leave and if it happens repeatedly, you might not come back.

One of the big things that's going on with Fastly right now, during the second quarter, their network suffered a massive outage. It affected a wide swath of the internet; sites like Amazon, Reddit, The New York Times, and some Shopify merchants, were offline for a bit. That impacted the company's performance in the second quarter.

Jason Hall: It's crazy, the stock went up when that happened. That was just this bizarre thing that happened.

Trevor Jennewine: It did. Went think, up like maybe 10% that day.

Jason Hall: Yeah.

Trevor Jennewine: They remedied the problem very quickly. I think Wall Street was impressed by how quickly they got things back online. But there's a little bit more damage done. I guess that maybe it was first the evidenced during the conference call the revenue for the second quarter jump just 14%. Pretty slow growth from what you might expect from a high-growth tech company. Their net retention rate ticked down. They measure this two ways. They measure it monthly, and they measure it over the trailing 12 months and their monthly net retention rates. So that would be like the last month of the quarter compared to the same month in the prior year, it ticked down below 100%. They also mentioned that one of their top 10 customers had moved traffic off of the platform and have not returned as of the second quarter.

They didn't mention the customer by name. But Amazon stopped using Fastly in the days after the outage. There's a good chance that unnamed customer was Amazon. The bright side here is that Amazon has moved traffic back on to Fastly in August, and they are still using it as of today. Let's see, I'm going to throw my slides up here. I think management tempered guidance for the third quarter just because of what was going on with the outage. But that might put the company in a position where they could deliver beat on the topline. Management is looking for $82 million to $85 million in revenue, and that would be about 20% growth. Still operating at a loss, non-GAAP EPS -$0.21 to -$0.18. Unlike Twilio, this company is not free-cash-flow positive. They've never produced positive free cash flow. They had one quarter where they had positive operating cash flow. But that has since trended back down. If you are a Fastly shareholder, as I am, this year has been rough. The stock is down, in this picture, this year it's down almost 60%, while the S&P 500 has gone the other direction. Just a rough year for our shareholders.

Jason Hall: From the all-time high, it's down even more than that.

Trevor Jennewine: Yeah. Things I'm going to be looking at. I'm going to be looking at revenue growth. I would like to see that number come in higher than 20%, and especially in quarters. They are still dealing with some of the fallout from the outage. But two, three, or four quarters down the road, I would really like to see that number back in the mid-30s or even higher.

Customer growth here is essential. Fastly has 2,581 customers right now, and they grew that number 32% last quarter. That's not bad. But the real number I focus on is their enterprise customers, they have 408 customers on the platform that spend over $100,000 each year. Fastly hangs its hat on its performance compared to legacy solutions like Akamai and even more modern CDNs like Cloudflare. Fastly says that it offers better performance. It offers more programmability and flexibility for developers. They should be able to build more customized solutions on its network, and that's really important for those large enterprises. The ones that have a huge DevOps team, a huge IT team, they have the resources to build those customized solutions. Fastly's business really target those enterprise customers. They are 408 right now, I would like to see solid growth in the coming quarters.

I'd also like to see free cash flow moving in the right direction just to make sure the business model is sustainable. There's plenty of competition in this space with companies like Cloudflare, and Cloudflare has just been executing very well. I know Tim Beyers talked about Fastly recently, and I think he went into some of the changes that are going on in the business or the updates they're rolling out. Two things I'm looking for in management's commentary is they recently completed that acquisition of Signal Sciences, which bolstered their security portfolio, and they just rolled out a managed security offering last quarter. They launched the Signal Sciences agent in Beta on the Fastly edge Cloud. I'd like to hear any progress they're making with that. They have a product called Compute@Edge, which is a server-less platform that allows developers to build their own applications right on Fastly's network. That makes for fast content delivery, and they don't have to manage the infrastructure on site. They're building it directly on Fastly's network. Management has mentioned that they are seeing good traction with that, so I'd like to hear some more positive commentary from management on regarding Compute@Edge.

Jason Hall: Yeah, I'll say this real quick. I think the company has probably made a little more progress over the past quarter, at least the past couple of months that maybe its results show or maybe that it gets credit for. There's some changes that have been made in management, and just some of those things you're going to take some time to play out. The other thing too, I think expectations are just so dug down below right now for the company coming into this quarter, that alone may be just a reason to be optimistic.