Summary
Fastly reported third quarter fiscal 2022 revenue of $108.5 million, up 25.1% year over year. Year-to-date revenue was $313.4 million, up 22.1%. The top line benefited from adoption of the edge platform and Signal Sciences products, with Signal Sciences contributing $4.1 million in the quarter and $13.4 million year to date. Revenue growth came primarily from existing customers, as new customers contributed less than 10% of revenue. Approximately 94% of revenue was usage-based in both the three and nine months ended September 30, 2022. Customer count reached 2,925, including 482 enterprise customers. Enterprise customers generated 89% of trailing 12-month revenue, up from 430 enterprise customers that generated 88% a year earlier. Average enterprise customer spend was $759K, up 4% quarter over quarter. NRR LTM was 118%, up from 117% in Q2 2022, and DBNER was 122%, up from 120% in Q2 2022. The 10 largest customers generated 34% of trailing 12-month revenue, and the 5 largest generated 25%.
Profitability remains pressured. GAAP gross profit was $52.7 million, up 15.8%. GAAP gross margin fell 3.9 percentage points to 48.6%. Year-to-date gross margin was 47.0%, down 6.6 percentage points. Fastly attributed the decline to higher bandwidth, colocation, hosting, SaaS, depreciation, and personnel costs. GAAP operating loss was $65.8 million, wider than the prior-year quarter. Operating margin was negative 60.6%, up 2.7 percentage points. GAAP net loss was $63.4 million, wider than the prior-year quarter. Diluted EPS was negative $0.52, wider than the prior-year quarter. On a year-to-date basis, net loss narrowed to $144.1 million, and diluted EPS improved to negative $1.19. The company continues to invest in network infrastructure and expects total operating expenses to increase as it expands sales and marketing.
Cash generation weakened. Operating cash flow was negative $27.6 million in the quarter, down 926.9% year over year. Year-to-date operating cash flow was negative $57.5 million, down 88.1%. Capital expenditures were $2.6 million in the quarter, down 87.0%, and $11.4 million year to date, down 63.4%. Free cash flow, a non-GAAP measure, was negative $44.3 million in the quarter, compared with negative $34.3 million. Non-GAAP gross margin was 53.6%, down from 57.5%. Non-GAAP operating loss was $19.8 million, compared with $12.9 million. Non-GAAP net loss was $16.8 million, compared with $13.2 million. Non-GAAP net loss per share was $0.14, compared with $0.11. Adjusted EBITDA was negative $9.1 million, compared with negative $5.4 million. Deferred revenue was $25.9 million, up 4.5%. RPO was $173.0 million, up 17.2%.
For the fourth quarter of 2022, Fastly guides revenue of $112 million to $116 million, non-GAAP operating loss of $18.0 million to $14.0 million, and non-GAAP net loss per share of $0.15 to $0.11. For the full year 2022, the company guides total revenue to $425 million to $429 million, non-GAAP operating loss of $82 million to $78 million, and non-GAAP net loss per share of $0.67 to $0.63. The company has generated losses from operations in the past and expects to continue to incur operating losses for the foreseeable future. It believes its cash and cash equivalents balances and available borrowing capacity will satisfy anticipated cash needs for at least the next 12 months.
Risks include usage-based revenue volatility, concentration among the largest customers, data localization and cross-border transfer concerns, competition for sales personnel, and network infrastructure investment. Fastly also notes COVID-19 uncertainty and says the Russia-Ukraine conflict is not expected to have a material impact. Todd Nightingale joined as CEO. Product launches included the AWS Lambda agent for Next-Gen WAF and GraphQL inspection. Fastly was named a Challenger in the Gartner Magic Quadrant for Web Application and API Protection, and Glitch surpassed 2 million developers. The company acquired Glitch in May 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $108.5M | $102.5M | +5.8% | $86.7M | +25.1% |
| Gross profit | $52.7M | $46.1M | +14.4% | $45.5M | +15.8% |
| Gross margin | 48.5% | 44.9% | +3.6 pp | 52.5% | -3.9 pp |
| Research & development | $39.0M | $38.7M | +0.6% | $32.5M | +19.8% |
| Sales & marketing | $47.0M | $46.8M | +0.5% | $39.3M | +19.6% |
| General & administrative | $32.5M | $29.5M | +9.9% | $28.6M | +13.5% |
| Total operating expenses | $118.4M | $115.0M | +3.0% | $100.4M | +17.9% |
| Operating income (loss) | -$65.8M | -$69.0M | +4.6% | -$54.9M | -19.7% |
| Operating margin | -60.6% | -67.3% | +6.7 pp | -63.3% | +2.7 pp |
| Net income (loss) | -$63.4M | -$16.4M | -285.8% | -$56.2M | -12.9% |
| Net margin | -58.5% | -16.0% | -42.4 pp | -64.8% | +6.3 pp |
| Diluted EPS | -$0.52 | -$0.14 | -$0.38 | -$0.48 | -$0.04 |
Risks
Platform defects, interruptions, or outages could cause customer loss, service level agreement claims, and significant costs. The filing cites the June 8, 2021 global platform outage caused by an undiscovered software bug from human error, which led some customers to reduce or remove traffic and resulted in service level agreement claims.
Failure to attract new enterprise customers and to have existing enterprise customers increase usage could harm the business. Enterprise sales require costly sales efforts, longer sales cycles, and formal purchase approvals. As of September 30, 2022, Fastly had 482 enterprise customers, up from 430, generating 89% of trailing 12-month revenue.
A substantial portion of revenue comes from a limited number of customers and industries. In the trailing 12 months ended September 30, 2022, the 10 largest customers generated 34% of revenue, up from 31%, and the 5 largest generated 25%, up from 22%. Loss or reduced usage by a major customer would lower revenues.
Component delays, shortages, or price increases could interrupt server construction and capacity expansion. Fastly relies on a limited number of suppliers, and the filing notes the 2021 global microchip shortage and inflationary pressures, along with COVID-19-related delivery delays at colocation facilities.
Security breaches, DDoS attacks, ransomware, phishing, and supply chain attacks could disrupt operations, expose customer data, and lead to liabilities. The filing notes increased size and severity of DDoS attacks during 2021, the December 2021 Log4j vulnerability, and past attacks from parties believed to be government-sponsored.
Fastly identified three material weaknesses in internal control over financial reporting. If unable to remediate and maintain effective controls, investors may lose confidence in the accuracy and completeness of financial reports, and the stock price may be harmed.
Gross margin declined to 48.6% in FY2022 Q3 from 52.4% in the prior-year quarter, and to 47.0% year to date from 53.6%. MD&A attributes the decline to higher bandwidth, colocation, hosting, SaaS, depreciation, and personnel costs and notes continued infrastructure investment could adversely affect gross margins if not offset by revenue growth.
Data localization and cross-border data transfer laws create uncertainty. MD&A states Fastly received a higher number of EU privacy requests impacting sales negotiations, and potential customers declined to do business due to privacy concerns about transferring personal information to the United States.
Failure to attract and retain qualified personnel, especially sales and technical employees, could prevent execution of the business strategy. The filing highlights significant competition for sales personnel with required skills and notes new hires require significant training and may take time to reach full productivity.
Acquisitions and strategic investments may divert management attention, disrupt operations, and dilute stockholders. Fastly acquired Glitch in May 2022 and Signal Sciences in October 2020 for $759.4 million, and the filing notes limited experience integrating acquired businesses and possible failure to realize anticipated benefits.
The stock price has been volatile and may decline. From January 1, 2022 to November 2, 2022, the stock price ranged from $36.61 to $7.32 per share, and the filing notes past declines following third and fourth quarter 2021 results with no assurance of recovery.
DBNER may decline as customer cohorts mature. MD&A reports DBNER for the 2019 Cohort fell from 580.8% for the year ended December 31, 2020 to 150.8% for the year ended December 31, 2021, and states Fastly expects individual cohort DBNER to decrease once customers have used the platform for more than two years.
SaaS KPIs
All quarters →Total Customer Count
Enterprise Customer Count
Net Retention Rate (NRR)
Dollar-Based Net Expansion Rate (DBNER)
Summary, forecast, risks and KPIs are extracted from Fastly, Inc.'s SEC filings for Q3 FY2022 (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 2, 2026.