Content delivery company Fastly (NYSE: FSLY) announced better-than-expected revenue in Q1 CY2025, with sales up 8.2% year on year to $144.5 million. Its non-GAAP loss of $0.05 per share was $0.01 above analysts’ consensus estimates.

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StockStory’s Take

Fastly’s first quarter was shaped by ongoing momentum in enterprise customer acquisition and an increased emphasis on cross-selling multiple product lines, particularly security and compute. CEO Todd Nightingale attributed the quarter’s performance to the company’s go-to-market transformation, highlighting both the acceleration of new logo wins and expansion within strategic verticals such as travel, technology, and financial services. Nightingale also cited the company’s ability to diversify revenue beyond its largest customers, noting, “Revenue outside of the top 10 grew 17% year-over-year, outpacing overall growth and continuing to drive revenue diversification.” Management pointed to operational efficiency initiatives and improved cost controls as key contributors to the improvement in operating margin and positive free cash flow.

Looking ahead, Fastly’s guidance is underpinned by its continued focus on expanding its security portfolio and driving adoption of newer product lines like compute and observability. Management emphasized a cautious approach to forecasting due to macroeconomic and geopolitical uncertainties, particularly around U.S. policy impacting TikTok revenue. CFO Ron Kisling stated, “We anticipate our 2025 gross margins will be approximately 58% plus or minus 50 basis points,” while Nightingale added that pipeline visibility and improved sales execution are expected to support revenue growth in the second half of the year. The company’s strategy centers on increasing commitments from large customers, accelerating cross-sell opportunities, and leveraging recent improvements in pricing dynamics within its core network services business.

Key Insights from Management’s Remarks

Management highlighted enterprise customer gains, growth in security and compute offerings, and improved operational rigor as key drivers of the quarter’s performance.

• Enterprise customer momentum: The company saw a notable increase in new enterprise customer acquisitions, especially in high-value verticals like travel, technology, and financial services. Fastly’s focus on higher-touch sales and cross-sell incentives led to 19 new enterprise customers surpassing the $100,000 annual revenue threshold, contributing to improved revenue diversification.

• Security product expansion: Fastly expanded its security offerings, introducing enhancements such as client-side protection for web application firewall (WAF), advanced DDoS (Distributed Denial of Service) visibility, and AI-driven bot detection. Management emphasized security as a recurring, “sticky” revenue stream and identified it as a major long-term growth lever, though current adoption remains early-stage for newer products.

• Compute and observability growth: The company’s emerging products, led by serverless edge compute, saw robust adoption, with management citing the demand for dynamic, real-time user experiences across its customer base. Fastly specifically mentioned new use cases in travel and web applications, and recent launches in storage and compute as drivers of this segment’s 64% year-over-year growth.

• Operational efficiency gains: Management credited improved fleet efficiency and cost controls—such as software-based bandwidth optimization and pre-tariff hardware purchases—for better-than-expected gross margin performance. These efforts also contributed to Fastly posting positive free cash flow for the first time in eight quarters.

• Reduced revenue concentration: The top 10 customers represented a smaller share of total revenue versus prior periods, indicating progress in diversifying Fastly’s customer base. Management noted that no individual customer accounted for more than 10% of revenue, highlighting the impact of go-to-market changes and strategic account engagement.

Drivers of Future Performance

Fastly’s outlook for the next quarters centers on security adoption, competitive pricing, and broadening product penetration.

• Security and cross-sell acceleration: Management believes that increased focus on cross-selling security products—such as WAF, bot mitigation, and DDoS protection—will drive a higher rate of revenue growth in the second half of the year and into 2026. The company expects newer security offerings to move from early-stage adoption to broader customer uptake.

• Pricing environment stabilization: Executives pointed to signs that network services pricing declines are moderating, returning from steeper drops to the high-teens percentage range. Fastly expects this more rational pricing landscape to become a tailwind for both revenue and gross margin, supporting improved profitability.

• Macroeconomic and policy risks: Management remains cautious about potential impacts from macroeconomic conditions and U.S. regulatory developments, particularly regarding TikTok. The company has excluded U.S. TikTok revenue beyond June 19 from its outlook and is monitoring for any changes in customer demand or buyer behavior, though no material shifts have been observed so far.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will monitor (1) the pace of security product adoption and cross-sell success across the enterprise base, (2) further improvement in pricing dynamics and their impact on gross margins, and (3) continued growth in compute and observability products. Any regulatory developments affecting major customers or shifts in macroeconomic demand will also be key factors to track.

Fastly currently trades at a forward price-to-sales ratio of 1.9×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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