FSLY Q2 Deep Dive: Growing Security, Leadership Changes, and Path to Profitability

Content delivery company Fastly (NYSE:FSLY) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 12.3% year on year to $148.7 million. Guidance for next quarter’s revenue was optimistic at $151 million at the midpoint, 2.5% above analysts’ estimates. Its non-GAAP loss of $0.03 per share was $0.02 above analysts’ consensus estimates.

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StockStory’s Take

Fastly’s second quarter was met with a significant positive market reaction, reflecting stronger-than-expected revenue growth and improving operating margins. Management attributed the outperformance to new customer acquisitions, effective competitive takeout strategies, and disciplined pricing. CEO Charles Compton highlighted the impact of Fastly’s expanded security offerings, which now account for a higher share of total revenue, and cited improved network efficiency as another contributor. Fastly also reported progress in diversifying its customer base, with revenue outside its top 10 customers outpacing overall growth.

Looking forward, Fastly’s guidance is anchored in continued momentum across core security and compute products, as well as strategic go-to-market expansion. Management emphasized three pillars for growth: targeting performance-driven customers, accelerating cross-sell and upsell within its installed base, and expanding internationally. Compton stated, “We remain committed to accelerating our growth rate and driving to profitability in the near term,” while CFO Ronald Kisling noted that ongoing improvements in customer onboarding and pricing discipline are expected to support both top-line and margin expansion.

Key Insights from Management’s Remarks

Management pointed to several business developments driving the quarter’s results and shaping its updated outlook, with a focus on security product adoption, leadership transitions, and evolving customer engagement.

• Leadership changes announced: Fastly appointed Charles Compton as CEO and welcomed Richard Wong as incoming CFO, with Scott Lovett expanding his role to President of go-to-market. Management described these changes as integral to accelerating execution and aligning teams for growth.
• Security product momentum: Security revenue grew at a faster pace and reached a record proportion of total sales, driven by new product launches and increased adoption among both new and existing customers. Management highlighted strong traction in verticals like healthcare and financial services, citing wins where Fastly displaced incumbent vendors.
• Go-to-market transformation: Fastly’s realigned sales organization prioritized performance-focused customers and incentivized cross-sell and upsell, which management said led to more customers purchasing multiple products. Packages and simplified onboarding processes contributed to increased customer retention and higher revenue commitments.
• Network efficiency and margin leverage: Improved network performance and operational discipline resulted in higher gross margins, with management noting that technology enhancements and pricing discipline played a significant role in the margin improvement.
• Revenue diversification: Revenue outside Fastly’s top 10 customers continued to grow faster than overall company revenue, marking the fifth consecutive quarter of this trend. Management sees this as reducing concentration risk and enabling more sustainable growth.

Drivers of Future Performance

Fastly’s outlook is shaped by anticipated growth in security and compute products, further international expansion, and operational efficiency initiatives.

• Security and compute product expansion: Management expects the ongoing rollout of new security features and compute services to drive customer adoption and larger contract values, especially as organizations consolidate vendors for integrated edge and security needs. Fastly’s platform approach is seen as enabling customers to address evolving digital threats more effectively.
• International market penetration: Fastly is increasing its focus on geographic expansion, appointing new leaders for Asia-Pacific and Southern Europe. Management believes these efforts will unlock incremental opportunities, especially in underpenetrated markets, though initial contributions are expected to materialize in future periods.
• Operational discipline and profitability: Cost optimization and improved cash management are central to Fastly’s path toward sustained profitability. Management highlighted lower operating expense growth relative to revenue and a focus on driving positive free cash flow while maintaining necessary investments to support long-term growth.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will be watching (1) how successfully Fastly expands its international footprint and leverages new leadership in key regions, (2) the pace of adoption for recently launched security and compute products among both existing and new customers, and (3) continued progress in cross-sell and upsell initiatives that drive higher customer retention and revenue diversification. Execution on operational efficiency and free cash flow generation will also serve as important indicators of Fastly’s ability to achieve sustainable profitability.

Fastly currently trades at $6.70, up from $6.51 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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