Edge computing-based cloud platform provider Fastly (FSLY 4.57%) reported third-quarter earnings on Wednesday, Nov. 6, that topped internal guidance. The company delivered improved results, achieving record non-GAAP net income of $2.4 million on revenue of $137.2 million. Non-GAAP net income per share was $0.02, an improvement over management's expected loss of $0.08 to $0.03 per share.

While results exceeded expectations, challenges remain with declining revenue from key customers.

Source: Fastly. Note: Management expectations are based on guidance provided on Aug. 7, 2024. YOY = Year over year. Bps = Basis points.

Fastly: Business Overview and Strategic Focuses

Fastly, a pioneer in edge computing, offers an innovative platform combining a Content Delivery Network (CDN) with cutting-edge edge computing solutions. This enables high-speed data processing and low-latency services critical for industries like e-commerce and content streaming. Its real-time programmability and strategic Points of Presence (POPs) provide significant competitive advantages. Recently, Fastly has focused on enhancing its edge cloud services with innovations in network and security solutions to meet the evolving digital expectations.

Investments in security technology, like their updated Web Application Firewall (WAF), have strengthened Fastly's position in addressing cybersecurity threats. This focus aligns with its strategic emphasis on maintaining robust, secure digital experiences for customers.

Quarterly Highlights and Financial Metrics

Fastly's Q3 of $137.2 million represents a 7% year-over-year growth. Security segment revenue grew by 12% to $26.2 million. The company showed efficient cost management, reducing its non-GAAP operating loss to $520,000, a considerable improvement from the predicted loss range of $8 million to $12 million. Improvements in non-GAAP gross margin, climbing to 57.7% from 55.9% a year ago, reflect these efficiencies.

Along with these positive financial metrics, Fastly saw some significant changes in its customer base. Fastly management noted an increase in customer diversity as its top 10 customers now account for 33% of revenue compared to 40% of revenue in the third quarter of 2023. A mixed metric was the fact that revenue from the top 10 customers declined 11% year-over-year while revenue grew 20% year over year from customers outside the top 10. Whether this is a positive metric or one of concern as it might be affecting customer retention warrants added attention in the coming quarters.

Looking Ahead: Financial Outlook and Key Priorities

Fastly has set its sights on continued financial improvement for the final quarter of 2024. Management projects revenue between $136 million and $140 million in Q4, and it anticipates a potential swing from a non-GAAP net loss per share of $0.02 to a positive $0.02. Management also revised full-year revenue guidance upward from the previous $530 million to $540 million, and it now expects $539 million to $543 million.

Management's outlook emphasizes broadening its customer base beyond its top consumers, investing in innovative edge services, and bolstering security offerings. Investors should keep an eye on Fastly's ability to capture new markets and stabilize its revenue base as critical factors for its future success. Retaining high-value customers and expanding its technological reach while maintaining operational efficiency will highlight the company’s path forward in the competitive landscape of digital platforms.