Fastly Inc - Ordinary Shares (FSLY) 7 Aug 24 2024 Q2 Earnings call transcript
AInvestThursday, Aug 8, 2024 1:53 pm ET
2min read
FSLY --

Fastly, a leading edge cloud platform provider, recently held its second quarter 2024 earnings call, shedding light on its performance and outlook for the future. The call, led by CEO Todd Nightingale and CFO Ron Kisling, provided insights into Fastly's financial results, strategic initiatives, and the challenges the company is facing.

Financial Highlights and Challenges

Fastly reported revenue of $132.4 million for the second quarter, slightly above the midpoint of its guidance, despite facing challenges with a small set of its largest customers. The company's operating loss of $12.6 million was also favorable to the guidance midpoint, thanks to strong gross margins and cost control across the business. However, the company has been dealing with revenue declines from some of its largest delivery customers, which has put increased pressure on vendors such as Fastly. The industry-wide focus on profitability has affected these customers' growth projections, leading to a decline in Fastly's projected revenue for the rest of the year.

Fastly's top 10 customers, which account for a significant portion of its revenue, dropped from 30% of revenue in the first quarter to 34% in the second quarter, despite a 13% year-over-year growth in the rest of its customer base. This drop in revenue from its top 10 customers has necessitated a shift in Fastly's business strategy, with a focus on expanding its customer base and reducing its reliance on these large customers.

Strategic Initiatives and Transformation

Fastly has been actively transforming its business to accommodate the changing market dynamics. The company has been focusing on developing its channel and demand generation motions, as well as expanding its portfolio to reach new verticals and build a more diverse customer base. This strategy has led to a 4% sequential increase in enterprise customer growth, with 601 enterprise customers at the end of Q2.

In terms of product development, Fastly has been investing in leading technology and innovation, including its AI accelerator, a key milestone for the company as its first truly AI product. The AI accelerator, which leverages the power of edge computing to deliver unparalleled performance worldwide, has seen a strong response from customers and is expected to significantly enhance customer retention and create efficiencies for Fastly.

Looking Ahead

Fastly's third quarter guidance of 3% year-over-year growth and modified 2024 guidance of 6% year-over-year growth are below the company's budgeted plans. To address these challenges, Fastly is taking measures to align its costs with the current revenue environment while continuing to invest in top line growth and innovation. This includes a restructuring of the company, which will involve a reduction in discretionary spend and a review of workforce staffing levels.

Despite these challenges, Fastly remains confident in its future prospects. The company's focus on customer acquisition, portfolio expansion, and innovation at the edge is expected to drive lasting differentiation for application and web development teams. Fastly's goal is to achieve operating income and free cash flow breakeven in 2025, highlighting its commitment to long-term growth and profitability.

Conclusion

Fastly's second quarter 2024 earnings call underscored the company's resilience in the face of challenges and its commitment to transforming its business to meet the evolving needs of the market. The company's strategic initiatives, including its focus on AI technology and expanding its customer base, position it well for future growth. Despite the current challenges, Fastly remains optimistic about its future prospects, with a clear path towards achieving profitability and driving long-term value for its stakeholders.

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