Fastly’s FSLY shares have plunged 27.4% year to date, underperforming the broader Zacks Computer & Technology sector’s decline of 8% and the Zacks Internet - Software industry’s fall of 2.8%.

FSLY shares have outperformed its industry peers like Digital Turbine APPS, Inseego INSG and Atlassian TEAM.

Year to date, shares of Digital Turbine have soared 98.3%, while Inseego and Atlassian have fallen 5.4% and 10.2%, respectively.

The FSLY stock’s price decline can be attributed to sluggish revenue growth, soft guidance and shrinking margins.

The company reported fourth-quarter 2024 revenues of $140.6 million, reflecting 2% year-over-year growth, driven by stagnant network services revenues. Customer retention challenges continue to limit scalability and long-term growth potential.

Fastly Suffers From Lower Customer Retention

FSLY is struggling with customer retention challenges and a shrinking overall customer base, highlighting potential hurdles in sustaining growth and maintaining revenue stability.

Fastly's reliance on its top 10 customers continues to decline, with their revenue contribution falling to 32% in the fourth quarter of 2024 from 40% in the year-ago quarter. This shift highlights revenue losses from key clients and the company's evolving customer base.

FSLY’s net retention rate fell to 102% in the fourth quarter from 105% last quarter and 113% a year ago, led by revenue losses from major customers. While no single client accounted for more than 10% of revenues, this decline highlights ongoing retention challenges and revenue instability.

Fastly saw a sharp decline in its customer base, losing 182 customers year over year and 577 in just the last quarter, highlighting ongoing retention challenges and potential weakness in customer growth.

FSLY’s Revenue & Earnings Estimates Show Mixed Trend

For the first quarter of 2025, Fastly expects revenues of $136-$140 million, indicating 3% year-over-year growth at the mid-point. The non-GAAP loss per share is projected between 9 cents and 5 cents.

The Zacks Consensus Estimate for first-quarter 2025 revenues is pegged at $138.27 million, indicating year-over-year growth of 3.56%.

The consensus mark for the bottom line is pegged at a loss of 6 cents per share, which has widened by a penny over the past 30 days. The consensus mark indicates a year-over-year decrease of 20%.

The company expects revenues of $575-$585 million for 2025, suggesting year-over-year growth of 7% at the mid-point. The non-GAAP loss per share for 2025 is projected between 15 cents and 9 cents.

The Zacks Consensus Estimate for FSLY’s 2025 revenues is pegged at $581.48 million, implying growth of 6.95% from the 2024 actual.

The consensus mark for earnings is pegged at a loss of 10 cents per share, down by 8 cents over the past 30 days. The consensus mark indicates a year-over-year rise of 16.67%.

Can AI-Driven Product Innovations Aid Fastly's Prospects?

FSLY's fourth-quarter 2024 results reveal significant product innovations, including AI Accelerator and advanced security solutions, strengthening its competitive edge in edge computing.

Fastly's AI Accelerator, a semantic caching solution, addresses performance and cost challenges in LLM and generative AI applications. Now supporting OpenAI's ChatGPT and Google Gemini, it enhances API efficiency, strengthens FSLY's AI infrastructure leadership, and creates revenue opportunities in the fast-growing AI market.

Fastly's new DDoS Protection service strengthens its security portfolio by providing automated threat defense to ensure seamless application and API performance. By minimizing disruptions and controlling cloud costs, this solution enhances Fastly’s competitive edge, driving customer adoption, retention and long-term revenue growth in the expanding security market.

FSLY introduced Object Storage, an S3-compatible solution with zero egress fees, aimed at reducing origin costs and enhancing performance for data-intensive users. By strengthening its platform with cost-efficient storage, Fastly positions itself for accelerated revenue growth, leveraging cross-selling opportunities to deepen customer engagement and expand its market footprint.

Conclusion

Fastly faces challenges with sluggish revenue growth and customer retention issues, raising concerns about its core business. However, the company’s AI Accelerator and expanding AI capabilities position it for gains in the booming AI market. While the long-term potential is promising, investors should wait for a better entry point in the near term.

Fastly currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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