Fastly Inc (FSLY)

Fastly Inc. (FSLY): An Overview

Company Profile:

History and Background:

Fastly started in 2011 as a project at MIT, focusing on improving content delivery performance. In 2014, it was spun off as a separate company. Fastly went public in 2019.

Core Business Areas:

• Edge Cloud Platform: Fastly provides a cloud platform that enables developers to build, secure, and deliver digital experiences globally. This includes features like content delivery network (CDN), edge compute, image optimization, and security services.
• Data & Insights: Fastly's platform also offers data and analytics tools, allowing users to monitor and optimize their online performance.

Leadership Team and Corporate Structure:

• Joshua Bixby (CEO): Joined Fastly in 2016, previously held leadership positions at Rackspace and GoDaddy.
• Sean Leach (CFO): Joined in 2022, extensive experience in finance leadership roles at technology companies.
• Fastly operates in a geographically dispersed structure with offices in the US, Europe, and Asia.

Top Products and Market Share:

Top Products:

• Fastly Edge Cloud Platform: Core offering, encompassing CDN, edge compute, and security features.
• Image Optimization: Optimizes images for faster loading times and improved user experience.
• Varnish Cache: Open-source caching software, core technology behind Fastly's platform.

Market Share:

• Global CDN Market: Fastly has a market share of around 2.5%, trailing behind Akamai (30%) and Cloudflare (25%).
• US CDN Market: Fastly holds roughly 4% market share, behind Akamai (35%) and Cloudflare (30%).

Product Performance and Comparison:

• Fastly's platform is known for its high performance, scalability, and developer-friendly features.
• However, it faces competition from larger players like Akamai and Cloudflare, who offer broader product portfolios and established brand recognition.

Total Addressable Market:

The global CDN market is estimated to be worth $15.4 billion in 2023 and is expected to grow at a CAGR of 15.2% reaching $33.8 billion by 2028. This growth is driven by increasing demand for faster and more reliable content delivery, especially for video streaming and e-commerce.

Financial Performance:

Revenue:

• Q3 2023 revenue was $106.3 million, representing a 15% year-over-year increase.
• Revenue growth has slowed down compared to previous quarters, reflecting a more challenging economic environment.

Net Income:

• Fastly is not yet profitable, reporting a net loss of $41.7 million in Q3 2023.
• The company is investing heavily in R&D and customer acquisition, impacting short-term profitability.

Profit Margins:

• Gross profit margin in Q3 2023 was 57.3%, indicating a healthy margin on core services.
• Operating margin remains negative at -47.3%, reflecting ongoing investments and operating expenses.

Earnings per Share (EPS):

• EPS for Q3 2023 was -$0.45, reflecting the company's net loss.
• EPS is expected to remain negative in the near term as the company prioritizes growth over profitability.

Cash Flow and Balance Sheet:

• Fastly has a cash and equivalents balance of $462.3 million as of Q3 2023, providing a healthy financial cushion.
• However, the company is burning cash, with an operating cash flow of -$49.1 million in Q3 2023.

Dividends and Shareholder Returns:

Dividend History:

• Fastly does not currently pay dividends, choosing to reinvest profits back into the business.

Shareholder Returns:

• Year-to-date, FSLY stock has declined by approximately 70%, reflecting broader market volatility and concerns about the company's profitability.
• However, over the past 5 years, FSLY stock has generated a total return of over 200%, highlighting the company's long-term growth potential.

Growth Trajectory:

Historical Growth:

• Fastly has experienced rapid revenue growth in recent years, with a CAGR of over 40% between 2019 and 2022.
• However, growth has slowed down in 2023 due to economic headwinds and increased competition.

Future Growth Projections:

• Analysts expect Fastly's revenue to grow at a CAGR of around 20% in the next few years.
• Key growth drivers include increasing demand for CDN services, expansion into new markets, and the development of new products and features.

Recent Initiatives:

• Fastly has recently launched new products, including its Compute@Edge platform, which allows developers to run serverless functions at the edge.
• The company is also expanding its global footprint, opening new offices in Europe and Asia.

Market Dynamics:

Industry Overview:

• The CDN market is highly competitive, with major players like Akamai, Cloudflare, and Amazon CloudFront vying for market share.
• The industry is experiencing rapid growth, driven by increasing demand for faster and more reliable content delivery.
• Technological advancements like edge computing and artificial intelligence are further shaping the industry landscape.

Fastly's Positioning:

• Fastly differentiates itself through its developer-friendly platform, high performance, and focus on edge computing.
• However, the company faces challenges from larger and more established competitors.

Competitors:

• Akamai (AKAM): Market leader with a global CDN network and a wide range of services.
• Cloudflare (NET): Fast-growing competitor with a strong focus on developer tools and security.
• Amazon CloudFront (AMZN): Part of the broader AWS ecosystem, offering a comprehensive suite of cloud services.

Challenges and Opportunities:

Challenges:

• Competition: Fastly faces intense competition from larger and more established players.
• Profitability: The company is not yet profitable and faces pressure to improve its margins.
• Economic headwinds: The current economic environment could impact customer spending and growth.

Opportunities:

• Market growth: The CDN market is expected to continue growing at a healthy pace, providing opportunities for expansion.
• Product innovation: Fastly's focus on edge computing and developer tools could lead to new market opportunities.
• Strategic partnerships: Partnering with other technology companies could help Fastly expand its reach and customer base.

Recent Acquisitions:

• 2021: Signal Sciences: Acquired for $775 million, enhancing Fastly's security offerings.
• 2022: Glitch: Acquired for $49 million, expanding Fastly's developer tools and community.
• 2023: Athenian Security: Acquired for $46 million, strengthening Fastly's identity and access management capabilities.

AI-Based Fundamental Rating:

Based on an AI analysis considering financial health, market position, and future prospects, Fastly receives a rating of 7 מתוך 10.

Justification:

• Strong Points: Fastly has a solid product portfolio, a differentiated focus on edge computing, and a strong market position