Fastly, Inc. Q4 FY2024 earnings call

Todd Nightingale mentioned that Fastly closed out 2024 with record fourth quarter revenue of $140.6 million, exceeding guidance. Revenue strength was due to better-than-expected seasonal traffic and share gains. Enterprise customer count returned to growth in Q4 with 596 customers. In 2025, the growth strategy is grounded in new products and go-to-market efforts, including expanding geographic presence in Latin America, India, APAC; cross-selling across the portfolio; refining segmentation; and evolving compensation structures. Product-wise, Fastly announced AI Accelerator, Object Storage, and saw wins in various sectors like streaming, insurance, etc. They also made investments in sales leadership and go-to-market motions.

In the fourth quarter, network services revenue was $110.1 million, flat year-over-year. Security revenue grew 4% year-over-year to $26.9 million, and excluding the $2.8 million true-up payment from last year, security revenue would have grown 17%. The other segment, representing emerging products, grew 63% year-over-year to $3.6 million, driven primarily by compute products. Annual revenue in 2024 was $544 million, up 7% year-over-year, with enterprise customers accounting for 93% of total revenue on an annualized basis in Q4.

For the first quarter, Fastly expects revenue in the range of $136 million to $140 million, representing 3% annual growth at the midpoint. For 2025, revenue is expected to be in the range of $575 million to $585 million, reflecting 7% annual growth at the midpoint. Gross margins are anticipated to increase ~30 basis points in Q1 relative to Q4, plus or minus 50 basis points. Operating expenses for Q1 are expected to increase by $3 million to $5 million. Non-GAAP operating loss for Q1 is expected to be in the range of $11 million to $7 million, and non-GAAP loss per share in the range of $0.09 to $0.05. For 2025, non-GAAP operating loss is expected to be in the range of $15 million to $9 million, with an operating margin of negative 2% at the midpoint. Free cash flow for 2025 is expected to be in the range of negative $20 million to negative $10 million.

Potential risks include uncertainty regarding TikTok's U.S. traffic beyond Q1, which has been excluded from 2025 guidance. There are also challenges in international market expansion affecting gross margins, and the impact of revenue headwinds from a few large customers.

Q: Can you give us an idea of what sort of investments in capital and people you'll need for the Asia Pac expansion? And when can we expect some of these changes to start impacting the topline trajectory?

A: From a capital investment perspective, it's fairly nominal. From a personnel perspective, a dedicated APAC sales leader is being hired, and it's expected to drive more local business with potential impact on topline in the future.

Q: Looking at the group that you're going to hire in sales to focus on new logos, how is that going to change the current sales structure and where you get new logos? How long will it be need to have that team built out? And then how should we think about new logo expansion and when that will sort of hit its stride?

A: The team is being refocused, with a focus on security specialization. The sales leadership has a strong security background, and the team is ramping up organically throughout the year.

Q: Just on the exclusion of the TikTok U.S. revenue. Just to be clear, like as of February 12 and year-to-date, like is that traffic still flowing at roughly the sub-2% of revenue rate that it's been flowing at or has it been cut off yet or any segregation to it?

A: Currently, it's running under normal load, but potential revenue from that U.S. traffic beyond Q1 is excluded from guidance.

Q: Just with Edgio shutting their network down, just what benefit, if any, did you see in Q4 post their bankruptcy announcement? And I guess, same question in Q1 and really what is baked into the 2025 guide from share gains and traffic gains from the customers who were running sizable traffic on their network?

A: There were new logo wins and efforts to bring Edgio traffic onto Fastly platform, with potential share gains baked into 2025 guide.

Q: On the security business, excluding the true-up, 17% growth is a pretty nice number. It looks like an acceleration versus the past couple of quarters. You have a new DDoS service out. Just any sort of expectations on whether the growth rates that you're seeing, call it, sort of mid to high-teens that should prove sustainable going forward to 2025 and some of the drivers for that?

A: 17% growth is good, but can do better with portfolio maturity, go-to-market changes, and cross-sell incentives.