Summary
Fastly reported Q3 2021 revenue of $86.7 million, up 23% from the prior-year quarter, net of a $0.9 million deferred revenue write-down tied to purchase accounting for the Signal Sciences acquisition. GAAP gross profit was $45.5 million, up 10%. GAAP gross margin slipped to 52.4% from 58.5%. Excluding stock-based compensation and amortization of acquired intangibles, non-GAAP gross margin was 57.5%, compared with 59.8% a year earlier. Management tied the margin decline to a return to traditional seasonal usage patterns after the pandemic-driven traffic surge of 2020, to heavier investment in infrastructure and capacity, and to amortization of intangible assets from Signal Sciences.
Profitability moved the other way. GAAP operating loss widened to $54.9 million from $23.5 million, and operating margin was -63.3%, compared with -33.2%. GAAP net loss widened to $56.2 million from $23.8 million. Diluted EPS loss was $0.48, compared with $0.22. Non-GAAP operating loss was $13 million, compared with $4 million, and non-GAAP net loss per share was $0.11, compared with $0.04. Operating cash flow turned negative: operations used $2.7 million in the quarter, versus $27.2 million provided in the prior-year quarter. Capital expenditures were $20.3 million, up 78.3%. Deferred revenue stood at $24.8 million. Remaining performance obligations were $147.6 million, up 47.6%.
Customer metrics were mixed. Total customers rose to 2,748 from 2,581 in Q2 2021, and enterprise customers rose to 430 from 408. Net retention rate was 112%, up from 93% in Q2 2021. Last-twelve-month net retention rate was 114%, down from 121% in Q2 2021, and dollar-based net expansion rate was 118%, down from 126% in Q2 2021. Average enterprise customer spend was about $698,000, compared with $702,000 in Q2 2021. Enterprise customers generated 88% of trailing twelve-month revenue, essentially flat from Q2 2021. The company said its top customers returned traffic after the Q2 2021 outage and continue to ramp, and that Compute Edge passed a trillion requests during the quarter. Forrester named Fastly a leader in edge development platforms, and Gartner moved it to Challenger in web application and API protection.
Guidance covers the fourth quarter of 2021 and the full fiscal year 2021, with revenue guidance issued for both periods. For the fourth quarter, the company guided to a non-GAAP operating loss between $15 million and $18 million and a non-GAAP net loss per share between $0.16 and $0.19. For the full year 2021, it guided to a non-GAAP operating loss between $60 million and $63 million and a non-GAAP net loss per share between $0.55 and $0.58. Management said the outlook reflects the timing of customer traffic ramping onto the platform, anticipated renewals, and the visibility it has today under a usage-based model. Gross margin is expected to stay relatively flat to down slightly in the short to medium term, and capital expenditures as a percentage of revenue are expected at the high end of the 12% to 14% range. Longer-term goals include $1 billion in revenue by 2025, 50 trillion requests by the end of 2022, 100,000 enterprise developers in 2023, and a security business 10 times larger by 2025.
Risks remain visible. The global outage in Q2 2021, caused by an undiscovered software bug triggered by a valid customer configuration change, led customers to reduce or remove traffic and produced service level agreement claims. COVID-19 still creates uncertainty, including supplier constraints on server components and delays in network buildouts. Privacy concerns around transfers of personal data to the United States have affected sales negotiations in Europe. Concentration matters too: the 10 largest customers generated 31% of revenue in the trailing twelve months, down from 37% a year earlier, and the largest customer during 2020, which has strong business ties to China, significantly reduced its usage. Execution risk is high while the company spends to build out its network, security products, and edge computing platform, with gross margin already down 6.1 percentage points year over year and the operating loss wider than a year ago.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $86.7M | $85.0M | +2.0% | $70.6M | +22.8% |
| Gross profit | $45.5M | $44.7M | +1.8% | $41.3M | +10.0% |
| Gross margin | 52.5% | 52.6% | -0.1 pp | 58.5% | -6.1 pp |
| Research & development | $32.5M | $30.3M | +7.2% | $18.3M | +78.0% |
| Sales & marketing | $39.3M | $36.3M | +8.1% | $22.6M | +74.1% |
| General & administrative | $28.6M | $35.5M | -19.4% | $24.0M | +19.4% |
| Total operating expenses | $100.4M | $102.2M | -1.7% | $64.8M | +55.0% |
| Operating income (loss) | -$54.9M | -$57.5M | +4.4% | -$23.5M | -134.2% |
| Operating margin | -63.3% | -67.6% | +4.3 pp | -33.2% | -30.1 pp |
| Net income (loss) | -$56.2M | -$58.3M | +3.6% | -$23.8M | -136.3% |
| Net margin | -64.8% | -68.6% | +3.8 pp | -33.7% | -31.1 pp |
| Diluted EPS | -$0.48 | -$0.51 | +$0.03 | — | — |
Risks
On June 8, 2021, a global platform outage caused by an undiscovered software bug from human error and triggered by a valid customer configuration change led customers, including some of the largest, to reduce or remove traffic and file service level agreement claims; these customers have not returned, and may never return, to prior usage levels.
Component delays or shortages, including the global microchip shortage throughout 2021 and supplier production constraints, could interrupt construction of servers needed to meet customer usage; MD&A notes suppliers have reduced availability or delayed most parts and components.
The company identified a material weakness in internal control over financial reporting during the quarter ended September 30, 2021 related to accounting for internal-use software costs, resulting in out-of-period adjustments; a prior material weakness remained partially unremediated for the year ended December 31, 2020.
For the trailing 12 months ended September 30, 2021, top ten customers accounted for approximately 31% of revenue and top five for approximately 22%; the largest customer during the year ended December 31, 2020 has strong business ties to China and significantly reduced usage in the later part of 2020.
Gross margin decreased to 52.4% in FY2021 Q3 from 58.5% in FY2020 Q3, down 6.1 percentage points, and operating loss widened to $54.93 million from $23.45 million; MD&A attributes margin decline to infrastructure investment, seasonal usage patterns, and Signal Sciences purchase accounting.
DBNER was 118.4% for the trailing 12 months ended September 30, 2021 compared with 147.4% for the trailing 12 months ended September 30, 2020, and NRR was 112.5% compared with 121.5%; management expects DBNER to decrease as customers using the platform more than two years become a larger portion of the base.
In March 2021, the company issued approximately $948.8 million aggregate principal amount of 0% convertible senior notes due 2026; conversion may dilute stockholders, servicing debt requires significant cash, and the conditional conversion feature could require cash settlement or reclassification of principal as a current liability.
Operating cash flow was -$2.69 million in FY2021 Q3 compared with $27.20 million in FY2020 Q3, and cash used in operating activities was $30.57 million for the nine months ended September 30, 2021; the company expects to continue incurring operating losses for the foreseeable future.
The invalidation of the EU-US Privacy Shield framework in July 2020 has led to more EU privacy requests, impacted sales negotiations, and caused potential customers to decline to do business due to privacy concerns about transfers of personal data to the United States.
The ongoing COVID-19 pandemic has adversely impacted live-event-related usage, caused supplier delays, travel and data center restrictions, and made revenue forecasting difficult; MD&A notes usage fluctuated and there is no assurance customers will continue at same levels as pandemic tapers.
Sales to enterprise customers involve longer sales cycles, competitive purchasing processes, and more formal approvals; onboarding and ramping new enterprise customers can take several months and be subject to delays.
The cloud computing platform market is highly fragmented and competitive, with legacy CDNs, cloud providers, and appliance vendors; some competitors offer lower prices or bundle competing services, creating pricing pressure.
SaaS KPIs
All quarters →Free Cash Flow
Non-GAAP Gross Margin
Non-GAAP Operating Loss
Net Retention Rate (NRR)
Average Enterprise Customer Spend
LTM Net Retention Rate (LTM NRR)
GAAP Gross Margin
Summary, forecast, risks and KPIs are extracted from Fastly, Inc.'s SEC filings for Q3 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.