Fastly Highlights Accelerating Growth, Record Margins and AI-Driven Compute Demand

Fastly reported accelerating growth and stronger profitability: Quarterly revenue rose 23.3% year over year to $183 million, gross margin reached a record 65.8%, and the company recorded its fourth consecutive profitable quarter and sixth straight quarter of positive free cash flow.

Security and compute are outpacing the core delivery business. Security revenue grew 43% and compute-related “other” revenue increased 69%, with management expecting the mix to shift gradually toward these higher-growth products as customers explore AI-related use cases.

AI traffic is creating new demand for Fastly’s edge services. Machine-generated requests have increased sixfold, potentially benefiting request-based security and compute offerings, while customer commitments, net retention and planned capital spending also continue to rise.

Fastly’s CFO Rich Wong said the edge cloud provider has accelerated revenue growth, expanded margins and generated positive free cash flow as management reshaped operating processes during his first 13 months at the company. Speaking at Citi’s TMT Conference, Wong said Fastly reported $183 million in revenue in its most recent quarter, up 23.3% year over year. He said delivery revenue grew 17%, security revenue increased 43%, and the company’s “other” segment, which includes compute and observability, rose 69%.

“We’ve really hit a reset on the business, a lot of transformation,” Wong said. “We’ve accelerated revenue growth.” Fastly reported record gross margin of 65.8% in the quarter, Wong said, along with about 15% operating margin. The company has posted four consecutive profitable quarters and six straight quarters of positive free cash flow, according to Wong.

Network services, Fastly’s delivery business, represented 73% of quarterly revenue and grew 17% year over year. Security accounted for about 23% of revenue, while the remainder came from the other category. Wong said Fastly’s security growth has been supported by an expanded product lineup. The company began with a web application firewall and has since added distributed denial-of-service protection, bot management, API security and client-side protection. That broader suite has enabled Fastly to compete for more requests for proposals and to sell delivery and security offerings together, Wong said.

Security and other revenue combined were nearly $50 million in the most recent quarter, including approximately $49.4 million cited by Wong, and grew more than 50% year over year. Compute was about $7 million during the quarter and remains the company’s fastest-growing product area, Wong said. He described the business as early-stage but said customers are working with Fastly to explore compute use cases tied to artificial intelligence. Management expects the revenue mix to gradually shift toward security and compute as those businesses continue to outgrow delivery, while maintaining investment in the delivery operation.

Vernon Essi, Fastly’s head of investor relations, said pricing in the content delivery network market has been relatively stable for roughly the past three quarters after a period of what he described as irrational pricing from smaller competitors that later exited the market. Even in the more stable environment, delivery pricing continues to decline in the mid- to high-single-digit percentage range year over year, Essi said.