Fastly saw its shares surge 64% after reporting fourth-quarter results that outpaced consensus forecasts, driven by strong event demand and a pickup in traffic from several large customers.
The cloud services provider posted revenue of $172.6 million, exceeding the consensus estimate of $161.4 million and representing a 22% year-over-year increase. Operating profit was $21.2 million and earnings per share were $0.12, both materially ahead of analyst expectations of $10.2 million and $0.06 per share, respectively.
Management said that outperformance in event activity and additional traffic from large customers were key contributors to the surprise. DA Davidson analysts summarized the results in terse form: "Strong Q4 25 Beat: Rev/Op Profit/EPS was $172.6M/$21.2M/$0.12 vs. cons. of $161.4M/$10.2M/$0.06. Mgmt. noted event outperformance & large customer directing traffic to the FSLY network drove the beat," wrote DA Davidson analysts.
Customer concentration remains notable. Fastly's top 10 customers made up 34% of revenue in the quarter, up from 32% in the prior quarter. Growth from those top 10 customers accelerated from 12% year-over-year to 30% year-over-year and those accounts accounted for roughly 56% of the sequential revenue increase. Revenue from all other customers grew 20% year-over-year, an acceleration from 17% year-over-year in the preceding quarter.
The company highlighted strength across its primary service groupings. Network Services, which represents 76% of total revenue, expanded 19% year-over-year, an acceleration from 11% year-over-year in the previous quarter. Security services, representing 21% of revenue, grew 32% year-over-year, slightly faster than the 30% year-over-year pace recorded in the prior quarter.
Profitability metrics also improved. Gross margin reached 64.0%, well above the estimate of 61.5%, an improvement of 650 basis points year-over-year and 120 basis points sequentially. Free cash flow was $8.6 million with a 5% margin, compared with consensus expectations of a negative $11.1 million.
Analysts pointed to changes in how the business is run as a factor in the results. "Business Seeing Benefits of New Operating Policies. Management has taken a different approach to how they operate the business, paying careful attention to patterns with customers and how they interact with them. What is probably going to prove to be the most impactful result from this approach is a policy of asking for revenue commitments from customers," Raymond James analysts wrote.
Customer retention metrics showed improvement alongside the revenue and margin gains. Fastly's customer retention rate rose to 110%, up from 106% in the previous quarter and 102% in the year-ago period. Remaining performance obligations climbed 55% year-over-year to $353.8 million.
What this means
- Fastly posted a sizable beat across revenue, operating profit and EPS, driven by event-related traffic and large-customer adoption.
- Network and security offerings both accelerated, supporting top-line strength and improving margins.
- Customer concentration increased modestly as the top 10 customers grew faster and accounted for a larger share of sequential revenue gains.
Market and sector impact
- Cloud infrastructure and content delivery firms - the results highlight demand dynamics for event-driven traffic and enterprise migration of traffic.
- Network services and cloud security markets - the acceleration in both segments signals growing enterprise spend in security-related cloud services.