Content delivery company Fastly (NYSE:FSLY) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 2% year on year to $140.6 million. Guidance for next quarter’s revenue was better than expected at $138 million at the midpoint, 0.8% above analysts’ estimates. Its non-GAAP loss of $0.03 per share was $0.03 below analysts’ consensus estimates.
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Fastly (FSLY) Q4 CY2024 Highlights:
- Revenue: $140.6 million vs analyst estimates of $138.3 million (2% year-on-year growth, 1.7% beat)
- Adjusted EPS: -$0.03 vs analyst estimates of $0 ($0.03 miss)
- Adjusted EBITDA: $9.75 million vs analyst estimates of $11.24 million (6.9% margin, 13.3% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $580 million at the midpoint, beating analyst estimates by 0.7% and implying 6.7% growth (vs 7.7% in FY2024)
- Adjusted EPS guidance for the upcoming financial year 2025 is -$0.12 at the midpoint, missing analyst estimates by 488%
- Operating Margin: -24.4%, up from -30.9% in the same quarter last year
- Free Cash Flow was -$7.91 million compared to -$7.11 million in the previous quarter
- Net Revenue Retention Rate: 102%, in line with the previous quarter
- Market Capitalization: $1.41 billion
“We are pleased to report record fourth quarter revenue, exceeding the high-end of our guidance range,” said Todd Nightingale, CEO of Fastly.
Company Overview
Founded in 2011, Fastly (NYSE:FSLY) provides content delivery and edge cloud computing services, enabling enterprises and developers to deliver fast, secure, and scalable digital content and experiences.
Content Delivery
The amount of content on the internet is exploding, whether it is music, movies and or e-commerce stores. Consumer demand for this content creates network congestion, much like a digital traffic jam which drives demand for specialized content delivery networks (CDN) services that alleviate potential network bottlenecks.
Sales Growth
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Fastly grew its sales at a 15.3% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our benchmark for the software sector, which enjoys a number of secular tailwinds.
This quarter, Fastly reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 1.7%. Company management is currently guiding for a 3.4% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.5% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
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Customer Retention
One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.
Fastly’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q4. This means Fastly would’ve grown its revenue by 4.9% even if it didn’t win any new customers over the last 12 months.
Despite falling over the last year, Fastly still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.
Key Takeaways from Fastly’s Q4 Results
We feel positive about Fastly’s revenue forecast for next year. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 17.2% to $8.34 immediately after reporting.
Fastly didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
