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01/10 16:14
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings report shows strong financial performance with 8% revenue growth, positive free cash flow, and improved operating loss. The raised 2025 revenue guidance and improved operating profit expectation further support a positive outlook. While there are concerns about declining gross margins and customer retention, strategic customer acquisitions and market share gains, along with optimistic guidance, suggest potential stock price appreciation. Given the small-cap nature of the company, these factors are likely to lead to a positive stock price movement in the short term.
Revenue $144.5 million, up 8% year-over-year; improved from 2% growth in Q4 2024 due to better-than-expected seasonal traffic demand and share gains.
Network Services Revenue $113.2 million, up 7% year-over-year; driven by increased traffic and customer acquisition.
Security Revenue $26.4 million, up 7% year-over-year; reflects growth in security offerings and customer adoption.
Other Products Revenue $4.8 million, up 64% year-over-year; primarily driven by compute products.
Gross Margin 57.3%, down 230 basis points from 59.6% in Q1 2024; decline due to pricing dynamics in 2024, but slightly better than projections due to efficiency improvements.
Operating Loss $5.8 million, improved from guidance of $11 million to $7 million loss; better-than-expected gross profit and cost control contributed to this.
Net Loss $6.6 million, compared to a net loss of $5.3 million in Q1 2024; reflects ongoing investments and operational costs.
Adjusted EBITDA $7.8 million, up from $4.9 million in Q1 2024; improvement due to higher revenue and operational efficiencies.
Cash from Operations $17.3 million, up 55% year-over-year from $11.1 million in Q1 2024; driven by improved revenue and cost management.
Free Cash Flow $8.2 million, positive for the first time in eight quarters; a $10.4 million increase from negative $2.2 million in Q1 2024, driven by improved cash from operations and lower capital expenditures.
RPO (Remaining Performance Obligations) $303 million, up 33% year-over-year; growth attributed to increased customer commitments and successful packaging strategy.
Security Portfolio Expansion: In 2024, Fastly expanded its security portfolio from one offering to three core offerings: WAF, bot mitigation, and DDoS protection. In Q1 2025, enhancements were made to these offerings, including client-side protection and AI bot detection.
Compute Products Growth: Revenue from the Other segment, which includes emerging products like compute, grew 64% year-over-year, indicating significant differentiation in the market.
New Customer Acquisition: Fastly acquired 19 new enterprise customers in Q1 2025, significantly up from 10 in Q4 2024, indicating strong market expansion.
Revenue Growth from New Verticals: Fastly is seeing momentum in new logo acquisition in strategic verticals such as travel, technology, financial services, and retail.
Operational Efficiency: Gross margin for Q1 2025 was 57.3%, slightly better than projections, due to improved network utilization and cost control.
Free Cash Flow: Fastly generated $8 million in positive free cash flow in Q1 2025, marking a significant improvement from previous quarters.
Go-to-Market Strategy: Fastly's new segmented go-to-market strategy has created a higher touch approach with larger accounts, driving strong enterprise and mid-market customer acquisition.
Revenue Guidance Increase: Fastly raised its 2025 revenue guidance by $10 million to a range of $585 million to $595 million, reflecting a 9% annual growth.
Regulatory Issues: The company has excluded revenue from U.S. TikTok operations after June 19 due to ongoing scrutiny and uncertainty regarding U.S. policy on TikTok, which could impact future revenue.
Competitive Pressures: The company is facing pricing dynamics that have led to a decline in gross margin, with pricing per gigabit declining in the low 20% range, although they expect stabilization in the high teens.
Supply Chain Challenges: Fastly is taking actions to improve fixed overhead and bandwidth costs to mitigate supply chain dependencies, indicating ongoing challenges in this area.
Economic Factors: Macro uncertainties persist across the market, which could impact demand patterns and overall business performance.
Customer Retention: The trailing 12 months net retention rate has declined to 100%, down from 102% in the prior quarter, indicating potential challenges in retaining revenue from existing customers.
Go-to-Market Transformation: Fastly made significant progress in its go-to-market transformation, focusing on product release velocity and growing traffic share with larger enterprise customers.
Customer Acquisition: The company emphasized logo acquisition and growing the enterprise customer mix outside of its top 10 customers, with 19 new enterprise customers added in Q1.
Security Portfolio Expansion: Fastly expanded its security portfolio from one offering to three core offerings, enhancing its competitive advantage and aiming for significant revenue growth in this area.
Packaging Initiatives: The company reported that packaging deals more than doubled year-over-year, contributing to improved customer experience and revenue stability.
Revenue Diversification: Revenue outside of the top 10 customers grew 17% year-over-year, indicating successful revenue diversification efforts.
Q2 2025 Revenue Guidance: Expected revenue in the range of $143 million to $147 million, representing 10% annual growth at the midpoint.
2025 Revenue Guidance: Raised to the range of $585 million to $595 million, reflecting annual growth of 9% at the midpoint.
2025 Gross Margin Guidance: Expected to be approximately 58% plus or minus 50 basis points.
2025 Operating Loss Guidance: Expected non-GAAP operating loss in the range of $12 million to $6 million, with an anticipated operating profit in the second half of 2025.
Free Cash Flow Guidance: Expected to be in the range of negative $10 million to breakeven, compared to negative $36 million in 2024.
Free Cash Flow Q1 2025: $8 million positive free cash flow generated in Q1 2025.
2025 Revenue Guidance: Raised to $585 million to $595 million, reflecting annual growth of 9% at the midpoint.
Operating Loss Guidance for 2025: Expected to be in the range of $12 million to $6 million, with an improvement of approximately 59% in dollar terms over 2024.
Operating Profit Expectation: Anticipated to achieve operating profit in the second half of 2025.
The earnings call highlights strong financial performance with impressive revenue growth across all sectors, especially in security. The company raised full-year revenue guidance and improved cash flow, indicating operational efficiency. Despite slightly cautious Q4 guidance, the optimistic outlook on international expansion, particularly in APJ, and strong cross-sell strategies suggest growth potential. The market cap indicates moderate volatility, leading to a positive stock price movement prediction over the next two weeks.
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