Fastly's Strategic Turnaround and Underappreciated Growth Potential in 2026

In the fast-evolving landscape of cloud infrastructure, Fastly Inc. (FSLY) has emerged as a compelling case study in strategic reinvention. The company's Q3 2025 earnings report, which revealed a 15% year-over-year revenue increase and a 30% surge in security segment revenue to $34 million, underscores a leadership-driven momentum that is reshaping its trajectory, according to a GuruFocus analysis. As Fastly navigates a competitive CDN (Content Delivery Network) market, its cross-sell strategies, international expansion, and improving profitability metrics position it as a potential undervalued play for 2026.

Leadership-Driven Momentum and Strategic Expansion

Fastly's recent leadership changes and strategic initiatives have catalyzed a shift in its business model. The appointment of a new regional leader for the Asia-Pacific-Japan (APJ) market, coupled with expanded sales coverage, signals a deliberate focus on high-growth geographies, as noted in the GuruFocus analysis. This aligns with the company's broader push to diversify revenue streams beyond its core CDN offerings. For instance, a top 10 customer recently adopted all three of Fastly's products-edge computing, AI bot management, and DDoS protection-demonstrating the effectiveness of cross-sell strategies in deepening client relationships, according to the same GuruFocus analysis.

The company's decision to prioritize security services has paid dividends. Security revenue now accounts for 21% of total revenue, a figure that reflects both market demand and Fastly's ability to bundle solutions for enterprise clients, according to a Yahoo Finance report. Analysts at Piper Sandler and RBC Capital have upgraded their price targets to $10.00 and $9.00, respectively, citing confidence in the company's operational improvements and cross-sell potential, as reported in a Piper Sandler analyst note. These upgrades suggest that leadership's strategic focus is resonating with investors, even as broader market concerns about 2025 tailwinds persist.

Cross-Sell Success and Operational Resilience

Fastly's cross-sell success is not merely anecdotal. The security segment's 30% YoY growth was driven by a combination of product innovation and targeted sales strategies. For example, the integration of AI bot management and DDoS capabilities into a unified security platform has enabled the company to upsell to existing clients, as noted in the Yahoo Finance report. This approach has proven particularly effective in enterprise accounts, where the value of a comprehensive edge-computing ecosystem justifies premium pricing.

However, the company has acknowledged volatility in the security segment, attributing it to the early stages of new product strategies and go-to-market approaches, according to the Yahoo Finance report. Despite this, Fastly's ability to exceed revenue guidance-posting $158.2 million in Q3 2025 versus estimates of $151.1 million-demonstrates operational resilience, as reported in an Investing.com earnings summary. The firm's full-year revenue guidance, now raised to $630–$635 million, reflects confidence in sustaining this momentum, according to the GuruFocus analysis.

Undervaluation and Post-Earnings Rally Dynamics

While Fastly's financial performance has improved, its stock price remains at odds with its revenue growth. Over the past 12 months, the stock has declined 1.10%, closing at $8.07 as of November 2025, according to the Investing.com summary. This disconnect between earnings and valuation has created a compelling case for undervaluation. Fastly's P/S ratio of 2.52, slightly above the Software industry median of 2.43, suggests it is priced for moderate growth relative to peers, according to a GuruFocus term page. Meanwhile, its forward P/E ratio of 278.27-a figure inflated by a trailing EPS of -$1.03-highlights the market's skepticism about near-term profitability, as discussed in a Director's Talk interview.

The post-earnings rally, however, tells a different story. Following the Q3 2025 report, Fastly's shares surged 19% in premarket trading and added another 26.7% during the morning session, according to a MarketWatch report. This reaction was fueled by a combination of beat-and-raise results and optimistic guidance for Q4 revenue of $159–$163 million, which exceeds analyst expectations of $154.10 million, as reported in a GuruFocus post-earnings article. The rally suggests that investors are beginning to price in the company's strategic progress, even if skepticism about long-term margins persists.

The 2026 Outlook: Balancing Risks and Rewards

For 2026, Fastly faces a critical juncture. Its leadership-driven expansion into APJ and its cross-sell strategies must continue to deliver scalable growth to justify its current valuation. The company's gross margin of 62.8% in Q3 2025, according to a GuruFocus earnings summary, provides a buffer, but its negative net margin (-25.85%), as reported in a GuruFocus earnings note, remains a concern. Analysts have maintained a cautious stance, with an average target price of $7.83 and a "hold" recommendation, as noted in the Director's Talk interview. Yet, the recent upgrades from Piper Sandler and RBC indicate that confidence is building in Fastly's ability to navigate these challenges.

Investors should also monitor Fastly's ability to convert its edge-computing expertise into broader enterprise adoption. Unlike traditional CDN peers, Fastly's focus on programmable edge infrastructure positions it to capitalize on trends like AI-driven content delivery and real-time analytics, as discussed in the GuruFocus term page. If the company can maintain its cross-sell momentum and expand its security offerings, its current valuation multiples may appear increasingly attractive.

Conclusion

Fastly's strategic turnaround is a work in progress, but the pieces are falling into place. Leadership's emphasis on cross-sell, international expansion, and product innovation has driven tangible results, even as the stock remains undervalued relative to its revenue growth. The post-earnings rally in Q3 2025 suggests that the market is beginning to recognize these strengths. For 2026, the key will be whether Fastly can sustain its momentum while addressing profitability concerns. If it succeeds, the stock's current discount may prove to be a compelling entry point for long-term investors.