Summary
Fastly's first quarter of fiscal 2021 showed rapid top-line growth but a much wider loss. Revenue was $84.85 million, up 34.8% from the prior-year quarter. Gross profit was $47.36 million, up 32.8%. Gross margin slipped to 55.8%, down 0.9 percentage points. The operating loss was $49.96 million, and the loss widened from the prior-year quarter. Operating margin was negative 58.9%, down 39.9 percentage points. Net loss was $50.68 million, also wider than the prior-year quarter. Diluted EPS was negative $0.44. On cash flow, operating cash flow was negative $10.87 million, down 51.3%. Capital expenditures were $8.08 million, down 20.6%. Deferred revenue was $19.46 million, up 2184.2%. Remaining performance obligations were $140.10 million, up 97.3%.
The customer base expanded. Excluding Signal Sciences, Fastly had 2,207 customers as of March 31, 2021, up from 1,837 a year earlier. Enterprise customers rose to 336 from 297. Signal Sciences added 293 customers and 86 enterprise customers. Dollar-based net expansion rate was 139.3% for the trailing 12 months ended March 31, 2021, compared with 133.0% a year earlier. Net retention rate was 107.1%, down from 129.6%. Last-twelve-months net retention rate was 133.2%, up from 129.3%. The company excluded Signal Sciences from most key metrics and said it intends to report consolidated metrics later in 2021. The 10 largest customers generated 35% of revenue in the trailing 12 months, up from 31%. Enterprise customers generated 90% of revenue in that period, up from 88%. International customers were 1,208, or 53% of the total, as of March 31, 2021, compared with 931, or 51%, a year earlier.
The loss widened because costs grew faster than revenue. Management pointed to higher headcount, new equity awards, Signal Sciences integration costs, and network investments. Research and development, sales and marketing, and general and administrative expenses all rose sharply. About 94% of revenue came from usage on the platform, compared with 95% a year earlier, and revenue from new customers contributed less than 10% of revenue. The company said it expects total operating expenses to increase as it expands sales and marketing and invests in the platform and network. It also expects research and development expenses to decline as a percentage of revenue over the long term, though they may fluctuate quarter to quarter. Gross margin will continue to be affected by network investments and amortization of intangibles from the Signal Sciences acquisition. Fastly's network spanned 58 markets across 26 countries as of March 31, 2021, with a 130 terabit software-centric network.
Several risks hang over the story. The invalidation of the EU-US Privacy Shield framework has led to more privacy-related requests and some potential customers declining to do business with Fastly. A largest customer with strong business ties to China significantly reduced its usage of the platform in the later part of 2020, and further reductions could hurt results. The COVID-19 pandemic has delayed network build outs in South Asia and customer code freezes, and it may continue to affect usage tied to live events. Management also flagged competition for sales personnel, the complexity of international expansion, and the potential for service interruptions from software errors, hardware failures, or security breaches. The company warned that bandwidth it has contracted to purchase may become unavailable due to service outages, payment disputes, network providers going out of business, natural disasters, or government regulations.
Fastly said it has generated operating losses in the past and expects to continue incurring operating losses for the foreseeable future. It may need additional capital to fund strategic initiatives. During the quarter it entered a new credit facility and issued convertible senior notes due in 2026.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $84.9M | $82.6M | +2.7% | $62.9M | +34.8% |
| Gross profit | $47.4M | $48.9M | -3.1% | $35.7M | +32.8% |
| Gross margin | 55.8% | 59.2% | -3.3 pp | 56.7% | -0.9 pp |
| Research & development | $29.0M | $25.6M | +13.3% | $14.3M | +102.7% |
| Sales & marketing | $34.9M | $34.8M | +0.3% | $19.2M | +81.9% |
| General & administrative | $33.5M | $45.9M | -27.1% | $14.2M | +136.2% |
| Total operating expenses | $97.3M | $106.2M | -8.4% | $47.6M | +104.3% |
| Operating income (loss) | -$50.0M | -$57.3M | +12.9% | -$12.0M | -317.2% |
| Operating margin | -58.9% | -69.4% | +10.5 pp | -19.0% | -39.9 pp |
| Net income (loss) | -$50.7M | -$45.7M | -10.9% | -$12.0M | -322.7% |
| Net margin | -59.7% | -55.3% | -4.4 pp | -19.1% | -40.7 pp |
| Net retention rate | 137.0% | 115.0% | +22.0 pp | 130.0% | +7.0 pp |
Risks
We have identified a material weakness in internal control over financial reporting, partially unremediated for the year ended December 31, 2020, related to insufficient qualified accounting resources for complex transactions. Failure to remediate could impair accurate reporting and investor confidence.
In January 2021, we experienced a platform interruption that affected certain customers. The risk factor notes we have not developed redundancies for all aspects of our platform, and defects or failures could cause customer loss, service credits, and revenue decreases.
For the trailing 12 months ended March 31, 2021, our top ten customers accounted for approximately 35% of revenue and our top five customers accounted for approximately 24% of revenue. Loss of or reduced usage by major customers would lower revenues.
Our largest customer during the year ended December 31, 2020 has strong business ties to China and significantly reduced its usage of our platform in the later part of 2020, which we believe was in response to U.S. and other government actions. Further reductions could negatively impact our business.
The ongoing COVID-19 pandemic has adversely impacted and may continue to impact our business, including decreased or delayed technology spending, pricing concessions, and usage tied to live events. Travel and data center restrictions in South Asia delayed network build outs.
In March 2021, we issued approximately $948.8 million aggregate principal amount of 0% convertible senior unsecured notes due in 2026. Risks include dilution upon conversion, need for significant cash to service or repurchase the notes, and potential reclassification of the notes as a current liability if the conditional conversion feature is triggered.
The market for cloud computing platforms is highly fragmented and competitive, with legacy CDNs, small business-focused CDNs, cloud providers, and appliance vendors. Competitors may bundle competing services at lower prices, causing pricing pressure.
We generated a net loss of $50.7 million for the three months ended March 31, 2021, and had an accumulated deficit of $338.9 million as of March 31, 2021. We expect to continue incurring operating losses and may need additional capital.
Uncertainty around the EU-US Privacy Shield framework, invalidated in July 2020, has led to more EU privacy requests, impacted sales negotiations, and caused potential customers to decline doing business with us due to data transfer concerns.
We completed the Signal Sciences acquisition on October 1, 2020 and are integrating operations. Risks include failure to realize anticipated synergies, diversion of management attention, loss of key employees or customers, and dilutive issuances.
Sales and onboarding cycles with enterprise customers can be long and unpredictable, ranging from several months to well over a year, and onboarding can take several months. This creates delays between sales expenses and corresponding revenue.
There is significant competition for sales personnel with the skills and technical knowledge we require. Our ability to grow depends on recruiting, training, and retaining sufficient sales personnel, and new hires may take significant time to reach full productivity.
We are involved in consolidated putative securities class actions and shareholder derivative actions. Defending these claims is costly and could result in substantial damages or unfavorable settlements.
Our dual class structure concentrates voting control with Class B holders, including executive officers and directors. As of March 31, 2021, Class B represented approximately 48.6% of voting power, and Artur Bergman controlled approximately 42.4% of voting power.
Anti-takeover provisions in our charter documents, the indenture governing the Notes, and Delaware law could delay or prevent a change of control and limit stockholders' ability to replace or remove management.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from Fastly, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.