FSLY Q4 Deep Dive: Security Expansion and AI Tailwinds Drive Outperformance

Edge cloud platform Fastly (NYSE:FSLY) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 22.8% year on year to $172.6 million. On top of that, next quarter’s revenue guidance ($171 million at the midpoint) was surprisingly good and 6.9% above what analysts were expecting. Its non-GAAP profit of $0.12 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Fastly’s fourth quarter was marked by notable revenue growth and a significant improvement in profitability, leading to a strong positive reaction from the market. Management attributed this performance to robust demand in its Network Services and Security segments, with security revenue growth accelerating and new products gaining traction with enterprise clients. CEO Kip Compton emphasized the company’s ongoing focus on cross-sell opportunities and disciplined execution, citing larger customers directing more traffic to Fastly’s platform due to stability and performance benefits. He noted, “Our teams drove this success with discipline, focus and execution and we are excited to carry this momentum into 2026.”

Looking ahead, Fastly’s guidance is supported by continued investment in security offerings, platform innovation, and a growing opportunity around AI-driven workloads at the edge. Management credited their confidence to improved customer commitments, a broader product suite, and a go-to-market transformation that has deepened customer relationships. CFO Richard Wong described the outlook as a result of “closeness with customers and that go-to-market transformation that gives us that confidence.” However, management also cited potential macroeconomic and geopolitical uncertainties, along with supply chain dynamics, as factors they are monitoring.

Key Insights from Management’s Remarks

Management attributed quarterly success to security portfolio expansion, AI-related traffic growth, and increased customer commitments, while emphasizing balanced product and customer segment performance.

• Security revenue acceleration: Security product sales grew 32% year-over-year, outpacing previous quarters. Management credited this to an expanded security suite and growing customer demand for advanced solutions, particularly API security and bot mitigation, which now serve as primary entry points for new enterprise customers.
• AI traffic as a tailwind: Fastly noted a marked increase in traffic related to agentic AI—machine-to-machine requests from AI agents—boosting overall platform usage. Compton explained that AI-driven activity is “inflating the business in a very positive way,” with edge infrastructure well-positioned to support these workloads.
• Cross-sell and multiproduct momentum: The company’s effort to drive multiproduct adoption resulted in balanced growth across customer segments. Notably, large enterprise clients expanded their use of security and compute products, with examples including Fortune 500 companies displacing legacy providers in favor of Fastly’s platform.
• Improved pricing discipline: Management highlighted a contraction in price erosion, with Q4 seeing mid-single digit declines rather than the historical mid-teens. This was attributed to prioritizing customers valuing performance and resilience, supporting profitability even as volume grew.
• Broader customer commitments: Strategic negotiation changes encouraged larger upfront revenue commitments, helping mitigate volatility from consumption-based pricing and driving record remaining performance obligations (RPO) across the customer base.

Drivers of Future Performance

Fastly’s outlook is shaped by continued security product expansion, AI-driven edge traffic, and disciplined cost management amid macroeconomic uncertainty.

• Security and platform investments: Management expects ongoing investment in API security, bot mitigation, and resilience features to drive continued customer adoption and cross-sell opportunities. Fastly’s ability to address complex security needs is seen as a differentiator for future growth.
• AI and edge workloads: The company anticipates further increases in AI-related network activity, including agentic requests and inference tasks, as customers shift workloads to the edge. Management stated that AI is “increasingly a tailwind,” with new protocols and mitigation tools enhancing Fastly’s relevance.
• Macroeconomic and supply chain risks: While guidance reflects confidence in market share gains, management flagged elevated geopolitical risks and potential supply chain constraints—such as memory component shortages and cost inflation—as key uncertainties that could impact growth and required capital expenditures.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will focus on (1) the pace of enterprise security product adoption and cross-sell momentum, (2) the scale and profitability of AI-driven edge workloads, and (3) management’s ability to sustain improved pricing discipline and mitigate supply chain cost pressures. Any new product launches or expansion into additional geographies will also be monitored closely.

Fastly currently trades at $11.05, up from $9.35 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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