Summary
Fastly closed fiscal 2023 with record fourth quarter revenue of $137.8 million, up 15.5% from $119.3 million in the prior-year quarter. Full year revenue reached $506.0 million, up 16.9% from $432.7 million. Gross margin expanded meaningfully. GAAP gross margin was 55.0% in the quarter versus 52.4% a year earlier, and 52.6% for the full year versus 48.5%. Non-GAAP gross margin was 59.2% in the quarter, compared with 57.0%. Management tied the improvement to revenue growth outpacing the costs of supporting the network.
Profitability improved but stayed negative on a GAAP basis. The fourth-quarter GAAP operating loss narrowed to $42.6 million from $48.5 million, and the GAAP net loss narrowed to $23.4 million from $46.7 million. For the full year, the GAAP net loss narrowed to $133.1 million from $190.8 million, and GAAP diluted EPS was -$1.03 versus -$1.57. Non-GAAP results turned positive in the quarter, with non-GAAP net income of $1.7 million against a non-GAAP net loss of $9.5 million a year earlier.
Cash generation was mixed. Operating cash flow was negative $7.4 million in the quarter, an improvement from negative $12.1 million a year earlier, and positive $0.4 million for the full year versus negative $69.6 million. Free cash flow, a separate measure that also deducts capital expenditures and finance lease payments, was negative $21.9 million in the quarter and negative $59.0 million for the year. Capital expenditures fell to $2.7 million in the quarter, down 68.4% from $8.5 million. The company repurchased $130.9 million of convertible note principal for $113.6 million in cash, roughly 87 cents on the dollar, and ended the year with $328.8 million in cash, cash equivalents and marketable securities.
Customer metrics were mixed. Total customer count was 3,243, up 141 from the third quarter, with 578 enterprise customers, up 31. Average enterprise customer spend was $880 thousand, up 3% quarter over quarter. Annual revenue retention was 99.2% for 2023, up from 98.9% in 2022. But the LTM net retention rate slipped to 113% from 114% in the third quarter, and DBNER for the trailing twelve months was 119.0%, down from 122.7%. Deferred revenue was $38.2 million, up 24.9% year over year, and remaining performance obligations were $235.7 million, up 18.9% from $198.3 million.
Guidance points to a slower start to 2024. For the first quarter of 2024, Fastly guides to a non-GAAP operating loss of $14.0 million to $10.0 million and non-GAAP net loss per share of $0.09 to $0.05. For the full year 2024, the company guides to a non-GAAP operating loss of $20.0 million to $14.0 million and non-GAAP net loss per share of $0.06 to $0.00. Management also issued revenue guidance for both the first quarter and the full year.
Risks remain. The 10 largest customers generated 37% of revenue in the trailing twelve months, and affiliated streaming customers accounted for 12%, so usage changes at a few accounts can swing results. The business is largely usage-based, which makes revenue hard to predict. Data localization and cross-border transfer rules could affect customer growth, and bandwidth costs outside the United States and Europe run higher. Fastly also flagged competition for sales talent and the possibility of further write-downs if server capacity outpaces demand, after recognizing impairment charges in 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $137.8M | $127.8M | +7.8% | $119.3M | +15.5% |
| Gross profit | $75.8M | $66.1M | +14.7% | $62.6M | +21.1% |
| Gross margin | 55.0% | 51.7% | +3.3 pp | 52.5% | +2.5 pp |
| Research & development | $38.3M | $39.1M | -2.0% | $37.2M | +2.9% |
| Sales & marketing | $48.7M | $51.0M | -4.7% | $44.6M | +9.1% |
| General & administrative | $31.4M | $30.0M | +4.7% | $29.2M | +7.5% |
| Total operating expenses | $118.4M | $124.4M | -4.9% | $111.0M | +6.6% |
| Operating income (loss) | -$42.6M | -$58.3M | +27.0% | -$48.5M | +12.1% |
| Operating margin | -30.9% | -45.6% | +14.7 pp | -40.6% | +9.7 pp |
| Net income (loss) | -$23.4M | -$54.3M | +56.9% | -$46.7M | +49.9% |
| Net margin | -17.0% | -42.5% | +25.5 pp | -39.1% | +22.1 pp |
| Diluted EPS | -$0.18 | -$0.42 | +$0.24 | -$0.38 | +$0.20 |
Risks
Fastly has experienced DDoS attacks of significant size and severity and cyber-attacks from parties it believes are sponsored by government actors; these attacks have increased bandwidth used on its platform and strained its network. As it expands security-related products, it may become a more attractive target for attacks intended to destabilize or shut down its platform.
The 10 largest customers generated 37% of revenue in the trailing 12 months ended December 31, 2023, up from 35% in 2022, and affiliated streaming entertainment customers generated 12%, up from 11%. Loss of or reduced usage by one or more major customers would lower revenues.
Sales to enterprise customers involve longer sales cycles, competitive purchasing processes, and more complex requirements; MD&A states sales cycles can range from several months to well over a year and onboarding and ramping can take several months, making revenue difficult to predict.
Most customer contracts are only one year in duration and many largest customers have low minimum usage commitments, so they can reallocate usage or stop using the platform without penalty. DBNER decreased to 119.0% for the trailing 12 months ended December 31, 2023 from 122.7% in 2022, and LTM NRR decreased to 113.4% from 119.1%.
The market is highly fragmented and competitive, with competitors including Akamai, AWS, Cloudflare, F5, Thales, Google Cloud, Microsoft Azure, legacy CDNs, and point CDNs. Some competitors bundle competing services at lower or no additional cost, and customers may pursue do-it-yourself CDNs.
The remaining $346.5 million principal amount of 0% convertible senior notes matures on March 15, 2026; if the stock price is below the conversion price, holders likely will not convert and Fastly must repay in cash, and it may not have enough available cash or be able to obtain financing.
Fastly relies on a limited number of suppliers for server components, exposing it to delays, shortages, and price increases. In the year ended December 31, 2023, it recognized $4.3 million of computer and networking equipment related write-off charges due to excess capacity.
Deteriorating general economic conditions, inflation, increased interest rates, banking instability, and slow or negative market growth could affect customer budgets and usage. MD&A notes the Russia-Ukraine and Israel-Hamas conflicts but does not expect a material impact on results.
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 for customers and potential customers conducting business in Europe and elsewhere outside the United States.
There is significant competition for sales personnel with the skills and technical knowledge Fastly requires. Its ability to achieve revenue growth depends on recruiting, training, incentivizing, and retaining sufficient sales personnel, and new hires may take significant time to reach full productivity.
International expansion adds complexity and cost, and bandwidth costs are higher in markets outside the United States and Europe, which may impact gross margins.
Fastly has previously been and may in the future be subject to class-action and shareholder derivative lawsuits. Defending these claims is costly and can burden management, and an unfavorable outcome could result in substantial monetary damages.
SaaS KPIs
All quarters →Free Cash Flow
Total Customer Count
Remaining Performance Obligations (RPO)
Enterprise Customer Revenue %
Enterprise Customer Count
Net Retention Rate (NRR)
Average Enterprise Customer Spend
Dollar-Based Net Expansion Rate (DBNER)
Annual Revenue Retention Rate (ARR)
Summary, forecast, risks and KPIs are extracted from Fastly, Inc.'s SEC filings for Q4 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.