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The Edge

Fastly customers have learned to stop worrying and love the cloud

Fastly has become slowly in recent months as some Internet turbulence, including a major outage that temporarily brought down several big websites, has blown through its business. But customers have quickly stopped worrying about the Internet apocalypse, it seems. Before the content delivery network (CDN) reported third-quarter results on November 4, its share price had nosedived 55% since gaining peak 2021 altitude in February. But results powered an 8% increase on the day of publication and Fastly's stock was up nearly 4% before noon today in New York.

It is well below the giddy heights of early 2021 and concerns about Internet disruption and dependency have hardly gone away. Fastly's June outage, which turned the Internet lights off for Amazon, Reddit, Twitch and several popular newspapers, was followed a few weeks later by problems at Akamai, another CDN. Worse still came last month when human error at Facebook (or is it now Meta?) resulted in a seven-hour glitch, shutting users out of the Facebook site as well as Instagram and WhatsApp.

Fastly's share price in New York ($)
Source: Google Finance
Source: Google Finance

Two things really stand out when it comes to Fastly's latest report. The first is this statement by CEO Joshua Bixby in the company's filing with the US Securities and Exchange Commission (SEC): "Following our outage in Q2, a few of our top customers paused using our platform. However, I am pleased to report that our top customers have returned traffic and continue to ramp following significant stability and resilience work by our infrastructure and engineering team."

This would partly explain why third-quarter revenues were up 23% year-on-year, to about $86.7 million, although Fastly's takeover in October 2020 of Signal Sciences, which develops security products, is responsible for some of that increase. Customer numbers at Fastly rose from 2,581 in the second quarter to 2,748 in the third. If the succession of high-profile Internet problems has made some organizations reflect on the wisdom of Internet dependency, they have ultimately carried on as before.

Lofty forecast

The other, related standout item is Fastly's unchanged target of generating about $1 billion in revenues by 2025. During the earnings call yesterday, Rudy Kessinger, an analyst with D.A. Davidson, pointed out that sales will have to rise at a compound annual growth rate of 30% if Fastly is to achieve this target. With so much more business, any future outage would be even more damaging.

While the CDN market in which Fastly plays does look competitive, it is underpinned by a small number of big cloud providers, including AWS, Microsoft Azure and Google Cloud. Such companies "facilitate the offering of our platform," admits Fastly in its last annual SEC filing. No giant is immune to problems, as the Facebook outage showed. The only way customers can feel entirely safe is with a back-up. But judging by this year's outages at individual providers, and the disruption they caused, many companies do not have one.

In addition, Fastly's losses have risen dramatically, despite sales growth. For the first nine months of this year, they have more than trebled, to about $165 million. Fastly blames that takeover of Signal Sciences, which appears to have brought much sharper growth in costs than sales. Investors must be hoping that a revenue increase on the scale of Fastly's forecast will also generate profitability. But no company whose losses are growing faster than its sales can inspire total confidence.

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— Iain Morris, International Editor, Light Reading

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