Fastly’s Revenue Growth is Concerning as Crowdflare Prospers

Stock (Symbol)

Fastly (FSLY)

Stock Price


Data is as of
April 22, 2021
Expected to Report
May 5
Company Description
Fastly, Inc. (Fastly) is a real-time content delivery network (CDN) company. With Fastly, the user can manage traffic spikes and mitigate security threats. Fastly works with Google Cloud Platform to extend the user’s infrastructure and application logic for content delivery, backend workload, infrastructure costs and scalability. Fastly’s streaming media services offer global delivery of video content, whether it’s live or video on demand (VOD). The Company’s edge cloud platform, designed from the ground up to be programmable and support agile software development. Source: Thomson Financial
Sharek’s Take
David SharekFastly (FSLY) turbocharges websites, and big brands are appreciative of the speed it provides. And now the company is integrating cybersecurity into its data flow with the acquisition of Signal Services, which is expected to add $30-40 million in revenue this year. But overall, analysts expect FSLY revenue to grow from around $290 million in 2020 to around $380 million this year. Take out $35 million and organic revenue growth is expected to be just 19%. Ugh! Meanwhile, the market leading Crowdflare is expected to deliver 38% revenue growth without the need to pad the stats with a big acquisition.

Fastly is an edge cloud computing platform that allows developers to build and deliver digital content at the edge of the internet, which improves speed of downloads.

  • The edge cloud uses a paradigm like a spider web that takes the data from a main source and puts it in dozens of cities around the world.
  • This closer source makes it quicker to transmit data back and forth.
  • The cloud provider then manages the allocation of machine resources. So if say server in another city can deliver faster speed, Fastly shifts the user to the other server.
  • Fastly generates almost all its revenue from charging customers based on usage of the platform, based on gigabytes and requests. The surge in internet usage is really helping Fastly.
  • Potential customers have the ability to try the platform for free, and if they choose to use Fastly for live delivery they sign up online with their credit card. There is a minimum monthly fee of $50 a month.
  • Management is going after big customers that have the ability and the money to scale business higher.
  • Customers include: Microsoft, Google, Shopify, Spotify, Kayak, AirBnb, Twitter, Stripe, Vimeo, NY Times and Buzzfeed (Fastly helped Buzzfeed get 50% faster pageloads).
  • Fastly has acquired cybersecurity company Signal Sciences, and will be added to Fastly’s Secure@Edge API protection solution.

Fastly and Cloudflare are the top-two edge computing stocks, in my opinion. Fastly has the better speed, while Cloudflare has stronger cybersecurity skills. On a valuation shandpont, Crowdflare sells for around 40x revenue compared to FSLY at 20x. That’s a big difference, and shows you how much investors admire one stock over the other. Also, Crowdflare already has its cybersecurity running smothely while Fastly is integrating Signal Services. FSLY does have a nice Est. LTG of 30% a year, so it seems like a good growth stock. But geeze, 20% organic revenue growth isn’t much for what is supposted to be a rapid grower. FSLY is part of the Growth Portfolio and Aggressive Growth Portfolio. But I will sell the stock from these portfolios on Monday. I think Cloudflare is superior.

One Year Chart
For much of 2020, Fastly was one of the hottest stocks in the market. Then it settled down as it lowered profit and revenue estimates due to issues with its largest customer. On the week FSLY reported last qtr earnings, the stock opened at $103 and closed at $81, and lost 20%. The stock’s been dead money ever since. FSLY has dropped from $107 to $67 since my report last qtr. That’s weak.

Last qtr I felt the Estimated Long-Term Growth Rate of 30% might be too low. This qtr I think this may be accurate.

Just one qtr of profits during the past 4 and no profits on the near-term horizon.

Earnings Table
Last qtr FSLY reported a loss of 9 cents per share, which beat estimates of a penny. That stinks because business looked to be accelerating a qtr earlier as that profit estimate increased $0.05. Revenue increased 40% last qtr, but management was coy about how much came from Signal Services. In the conference call, multiple analysts asked them about it. 

Annual Profit Estimates dropped a lot. For the 2nd straight qtr.

Qtrly profit Estimates are for losses in each of the next four qtrs. And Estimates declined. For the 2nd straight qtr. Not good.

Fair Value
Since FSLY isn’t making a profit, and the fundamental outlook has gotten grey, my Fair Value comes down from 30x revenue estimates to 20x:

20 x $380 million = $8 billion market cap
$8 billion / 115 million shares = $67

2021 Fair Value:
25 x $380 million = $10 billion market cap
$10 billion / 115 million shares = $83
Upside/Downside: +24%

2022 Fair Value:
25 x $490 million = $12 billion market cap
$12 billion / 115 million shares = $106
Upside/Downside: +58%

This stock seems to have good upside.

Bottom Line
Fastly (FSLY) has a pretty ten-year chart. I think the product is fantastic for big brands that want the fastest website. But it seems Cloudflare has the “edge” in terms of cysbersecurity and revenue growth rate.

There was a lot to nit-pick about these numbers. On the conference call it seemedd analysts were not getting clarity on organic revenue growth. It seemed like management was hiding something. Since then, the stock’s gotten pushed ower and seems to have little momentum. Meanwhile, Clodflare broke out of a cup chart pattern last Friday as it jumped 10% on the day.

FSLY will be sold from the Growth Portfolio and Aggressive Growth Portfolio. I like this stock, but am trying to reduce the number of stocks in my coverage and would like to focus on leaders in their markets.

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