Summary
Fastly posted second quarter revenue of $122.8 million, up 19.8% from $102.5 million a year earlier. The press release also notes a 4% sequential increase. Gross profit climbed to $64.2 million from $46.1 million, and GAAP gross margin expanded to 52.3% from 44.9%. Management credited the margin gain to revenue growth, improved network efficiency and lower bandwidth costs as a percentage of revenue. The company still lost money on a GAAP basis, but the losses shrank. Operating loss was $49.8 million, narrower than the $69.0 million loss a year ago. Net loss was $10.7 million, or $0.08 per diluted share, compared with a net loss of $16.4 million, or $0.14 per diluted share, in the prior-year quarter.
On a non-GAAP basis the picture improved more sharply. Non-GAAP gross margin was 56.6%, up from 50.4%. Non-GAAP operating loss narrowed to $7.8 million from $26.9 million, and non-GAAP net loss was $4.6 million, or $0.04 per share, versus $28.0 million, or $0.23 per share, a year earlier. Adjusted EBITDA turned positive at $5.2 million, compared with negative $16.0 million in the prior-year quarter. The gap between GAAP and non-GAAP results is largely stock-based compensation.
Cash generation was a bright spot. Operating cash flow was $24.99 million for the quarter, up from negative $16.68 million a year earlier. Free cash flow, a separate measure that also subtracts capital spending and other items, was $7.8 million versus negative $61.0 million. Capital expenditures were $4.46 million, down 30.6% year over year. The company also repurchased $236.4 million in aggregate principal amount of convertible debt for $195.7 million, a 17% discount to par that produced a $36.8 million net gain. Deferred revenue rose 21.3% to $35.25 million, and remaining performance obligations rose 33.3% to $230.9 million.
Customer metrics were mixed. Trailing 12-month net retention rate was flat at 116% compared with the first quarter. Dollar-based net expansion rate rose to 123% from 121%. Total customer count fell by 28 from the first quarter to 3,072, while enterprise customers rose by 11 to 551. Average enterprise customer spend was $818 thousand, up 3% quarter over quarter. Management said revenue from new customers contributed less than 10% of total revenue, and roughly 95% of revenue came from usage on the platform. Revenue growth was driven by further adoption of the edge platform and products, and revenue attributed to products from the Signal Sciences acquisition was $2.1 million for the quarter.
For the third quarter, Fastly guided to total revenue in a range of $125 million to $128 million, with a non-GAAP operating loss in a range of $15.0 million to $13.0 million. For the full year 2023, the company expects total revenue in a range of $500 million to $510 million and a non-GAAP operating loss in a range of $49.0 million to $43.0 million. Non-GAAP net loss per share is guided to a range of $0.09 to $0.07 for the third quarter and $0.27 to $0.21 for the full year. Risks remain. The 10 largest customers generated 36% of revenue in the trailing 12 months ended June 30, 2023, up from 33% a year earlier, so concentration is rising. Management also flagged competition, data localization rules, network capacity constraints and the possibility of cyber-attacks tied to geopolitical conflict.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $122.8M | $117.6M | +4.5% | $102.5M | +19.8% |
| Gross profit | $64.2M | $60.3M | +6.6% | $46.1M | +39.4% |
| Gross margin | 52.3% | 51.3% | +1.0 pp | 44.9% | +7.4 pp |
| Research & development | $37.4M | $37.4M | -0.0% | $38.7M | -3.3% |
| Sales & marketing | $47.8M | $44.3M | +8.0% | $46.8M | +2.2% |
| General & administrative | $28.8M | $25.8M | +11.6% | $29.5M | -2.4% |
| Total operating expenses | $114.0M | $107.5M | +6.1% | $115.0M | -0.9% |
| Operating income (loss) | -$49.8M | -$47.3M | -5.4% | -$69.0M | +27.8% |
| Operating margin | -40.6% | -40.2% | -0.4 pp | -67.3% | +26.7 pp |
| Net income (loss) | -$10.7M | -$44.7M | +76.0% | -$16.4M | +34.9% |
| Net margin | -8.7% | -38.0% | +29.3 pp | -16.0% | +7.3 pp |
| Diluted EPS | -$0.08 | -$0.36 | +$0.28 | -$0.14 | +$0.06 |
Risks
A substantial portion of revenue comes from limited customers and industries. The 10 largest customers generated 36% of revenue in the trailing 12 months ended June 30, 2023 versus 33% in 2022, and the 5 largest generated 27% versus 24%; streaming entertainment affiliates generated 11% both periods. Loss or reduced usage by a major customer would lower revenues.
Growth depends on attracting enterprise customers and expanding existing usage, but enterprise sales involve longer cycles, competitive purchasing, and most contracts are one year with low minimum commitments. NRR decreased to 105.5% for the last month of the period ended June 30, 2023 from 127.5% in 2022, and LTM NRR decreased to 116.1% from 117.3%, while DBNER increased to 122.5% from 120.0%.
The market is highly fragmented and competitive, with competitors including Akamai, AWS, Cloudflare, F5, Imperva, Google Cloud, Microsoft Azure, legacy CDNs, niche CDNs, and DIY or multi-vendor approaches. Pricing pressure and bundling by larger competitors could harm market acceptance and revenue.
Component delays, shortages, or price increases could interrupt server construction and network capacity expansion. Fastly relies on a limited number of suppliers and must forecast server needs; excess capacity could require write-downs and undercapacity could raise costs or impair customer relationships. MD&A also highlights potential component delays and server capacity challenges.
Fastly has experienced cyber-attacks, including from parties believed sponsored by government actors, and DDoS attacks of increased size and severity. Multi-tenant architecture means an attack on one customer could affect others, and ransomware, phishing, supply-chain attacks, and Russia-Ukraine related retaliatory attacks could disrupt operations and lead to liability.
Remaining $477.4 million of 0% convertible senior notes mature March 15, 2026. Fastly repurchased $236.4 million principal in May 2023 for $195.7 million, and may lack cash to repay or settle conversions; conversion could dilute stockholders, and the conditional conversion feature could require reclassifying notes as current liabilities.
The stock price has been volatile, ranging from $19.98 to $7.97 per share from January 1, 2023 to August 1, 2023, and from $36.61 to $7.15 in 2022. Continued fluctuations could cause investors to lose part or all of their investment and may lead to securities litigation.
Data localization and cross-border data transfer laws create uncertainty for data stored abroad and transferred across borders, which could impact customer growth and acquisition in Europe and elsewhere outside the United States. MD&A identifies this as a factor affecting performance.
Competition for sales personnel with the required skills is significant, and growth depends on recruiting, training, and retaining sufficient sales personnel. MD&A notes sales and marketing investments and the need to expand, retain, and motivate personnel.
Deteriorating general economic conditions, inflation, increased interest rates, banking instability, supply chain disruptions, and the Russia-Ukraine conflict could reduce customer spending and increase costs. MD&A says the conflict is not currently material but could materially impact results if it continues or worsens.
SaaS KPIs
All quarters →Free Cash Flow
Non-GAAP Gross Margin
Non-GAAP Operating Loss
Adjusted EBITDA
Dollar-Based Net Expansion Rate (DBNER)
Summary, forecast, risks and KPIs are extracted from Fastly, Inc.'s SEC filings for Q2 FY2023 (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.