Fast 🖐: $FSLY 1Q21 Earnings Call
Fastly ($FSLY) reported 1Q21 earnings May 5th, 2021. Below are our 5 key take-aways.
1) Summer usage seasonality is expected to be more pronounced with global reopenings
Digging into Fastly's seasonality, the company typically signs new customers in 1Q and 2Q which ramp in the back half of the year, paired with a slowing of expansion in 2Q as the world moves outside (the company generally benefits from people being inside on devices). Management is expecting a more exaggerated trend this year as the world begins to reopen.
Guidance now reflects the company's more normalized seasonality, with results flattish Q/Q in 2Q, followed by continued growth in 2H.
2) Company seeing greater visibility into back-half of year
Analyst questions focused heavily on 2H required ramp as flattish 2Q guidance would imply a greater-than-normal-seasonality ramp in 3Q and 4Q.
Joshua Bixby noted CDN traffic continues to grow and that is expected to continue in 2H. Layered on top of this market growth, is greater visibility into recent client wins' expansion through the remainder of the year and upcoming boosts from major sporting events.
3) Signal Sciences is now integrated into Fastly's single unified contract
Customers can now purchase Signal Sciences' product offering via Fastly's unified contract. Management also noted the sales teams are now completely integrated with everyone at Fastly selling the complete suite. Shortening sales cycles + simplified ordering process = greater cross-sell opportunities.
The acquisition was closed less than 2 quarters ago and has been an intense focus of the company's Chief Revenue Officer, Brett Shirk. The company noted 8 enterprise customer wins from Signal Sciences across multiple verticals within the quarter. The company is using its new security offerings to penetrate new accounts outside the normal sales cycle.
Sig Sci was ~10% of revenue in 1Q and grew ~15% Q/Q.
4) Gross margins weighed by investments in 1Q but still expected to grow 100bps y/y
Fastly tends to make investments in 1Q which tend to drive down margins Q/Q. As revenue and utilization increase in 2H margins tend to normalize.
They also noted that some of the customers wins on the enterprise side were joint wins with Signal Sciences which tend to carry better margins and will be accretive to gross margins.
As a side note, management dodged answering a question about competitors talking of pricing pressures.
5) Strong interest for Compute@Edge
Fastly's Compute@Edge continues to drive customer interest, primarily based on the company's focus on privacy and security. Management noted strong demand at the beginning of 2021 with a pathway to enhance innovation in the space and expand it's customer base worldwide. Signal Sciences is also driving differentiation on the security front which is expected to boost competitiveness against legacy players.