Fastly’s SWOT analysis: edge cloud provider’s stock faces growth hurdles

Fastly, Inc. (NYSE: NYSE:FSLY), a provider of edge cloud platforms and content delivery services, has been navigating a challenging landscape marked by leadership changes, industry consolidation, and evolving market dynamics. As the company strives to capitalize on emerging opportunities in artificial intelligence (AI) and security, it faces significant hurdles in achieving sustainable growth and profitability.

Recent Leadership Changes and Turnaround Efforts

Fastly recently announced a major leadership transition, with Kip Compton, the company’s Chief Product Officer, stepping into the role of CEO. This internal promotion follows the departure of Todd Nightingale, who is moving to Arista Networks (NYSE:ANET) as President and COO. The decision to elevate Compton is viewed as a strategic move to maintain continuity in Fastly’s ongoing turnaround efforts, particularly given the company’s recent history of management turnover.

Analysts suggest that this leadership change could potentially accelerate Fastly’s efforts to diversify its product offerings and penetrate new markets. However, the success of this transition remains to be seen, as the company continues to grapple with challenges in its core business and the need to establish a stronger foothold in emerging sectors such as edge computing and security.

Financial Performance and Market Position

Fastly’s financial performance has shown signs of improvement, with the company reporting a strong quarter in early 2025, described by some analysts as the largest beat in over two years. According to InvestingPro data, the company achieved revenue growth of 6.26% over the last twelve months, maintaining a healthy gross margin of 54%. However, InvestingPro Tips reveal that six analysts have recently revised their earnings expectations downward for the upcoming period. The company has reaffirmed its guidance for Q2 and the full year of 2025, projecting Q2 revenue between $143.0 million and $147.0 million, with a non-GAAP operating loss of ($8.0 million) to ($4.0 million). For the full year 2025, Fastly expects revenue of $585.0 million to $595.0 million, with a non-GAAP operating loss of ($12.0 million) to ($6.0 million).

A notable bright spot in Fastly’s performance has been the growth in revenue from non-top 10 customers, which saw a 17% year-over-year increase. This customer diversification is viewed positively by analysts, as it reduces the company’s reliance on a small number of large clients and potentially provides a more stable revenue base.

Despite these improvements, Fastly’s stock has been trading at lower multiples compared to its peers in the software sector. As of mid-2025, the company’s stock was trading at a calendar year 2025 EV/Sales multiple of 1.8x, significantly below the software sector average of 6.9x. Currently trading at $6.74, the stock has experienced significant pressure, falling nearly 37% over the past six months. According to InvestingPro’s Fair Value analysis, FSLY appears undervalued at current levels. Discover more insights and 5 additional ProTips about FSLY with an InvestingPro subscription. Analysts suggest that this valuation reflects ongoing challenges within Fastly’s business that have impacted its growth drivers.

Industry Landscape and Competitive Pressures

The content delivery network (CDN) industry, in which Fastly operates, has undergone significant consolidation in recent years. The sector has reportedly consolidated from six to three major players, a development that is expected to improve pricing trends and potentially benefit established providers like Fastly.

Analysts note that Fastly could potentially capture additional market share following the bankruptcy of competitor Edgio, with some projecting that Fastly might secure up to $40 million in revenue from Edgio’s customer contracts. This industry consolidation, combined with improving internet volumes and pricing, could create a more favorable operating environment for Fastly in the coming years.

However, the company faces increasing competition from hyperscalers in the content delivery, security, and edge compute sectors. This competitive pressure from larger, more diversified tech giants could pose challenges for Fastly as it seeks to expand its market share and penetrate new segments.

Growth Drivers and Emerging Opportunities

Fastly’s growth strategy hinges on several key factors, including the expansion of its security business and the potential opportunities presented by AI-related workloads. The company’s security segment has been growing at approximately 17% annually, with expectations to reach or exceed a 20% run rate by the end of 2025. This growth in security services is crucial for reducing Fastly’s reliance on its traditional delivery business.

The emergence of AI applications is seen as a potentially transformative opportunity for Fastly. Analysts suggest that the increased demand for edge computing and low-latency data processing driven by AI could significantly benefit Fastly’s edge cloud platform. However, the company will need to effectively capitalize on this trend and differentiate its offerings in an increasingly competitive market.

Debt and Financial Health

One of the most pressing challenges facing Fastly is its debt situation. The company needs to refinance $340 million in convertible debt within the next nine months, a task that will require disciplined pricing and expense management. InvestingPro data shows that Fastly operates with total debt of $402 million and a debt-to-equity ratio of 0.42, indicating a moderate level of leverage. The company’s current ratio of 1.5 suggests adequate liquidity to meet short-term obligations. In late 2024, Fastly issued new convertible notes and retired a significant portion of its 2026 notes, addressing near-term solvency issues but potentially impacting earnings per share due to higher interest rates.

Fastly aims to achieve free cash flow break-even by 2025, with growth projected thereafter. However, the company’s current FCF-negative status and dependency on the challenged delivery sector contribute to its valuation discount compared to peers.

Bear Case

How might Fastly’s dependence on top media customers impact its growth?

Fastly’s reliance on a small number of large media customers poses a significant risk to its growth prospects. The unpredictability of these top clients’ traffic patterns and business decisions can lead to volatility in Fastly’s revenue. For instance, the company’s relationship with TikTok, which accounts for about 2% of total revenue, could be jeopardized due to ongoing legal and regulatory issues surrounding the social media platform in various countries.

Moreover, as large media companies increasingly explore multi-vendor strategies or develop in-house solutions, Fastly may face challenges in retaining and growing its business with these key accounts. This dependence on a concentrated customer base makes Fastly vulnerable to sudden shifts in client strategies or market conditions, potentially limiting its ability to achieve consistent, predictable growth.

What challenges does Fastly face in penetrating emerging markets like security and compute?

While Fastly has made strides in expanding its security and edge computing offerings, the company faces significant hurdles in establishing itself as a leader in these emerging markets. The security and edge computing sectors are highly competitive, with established players and well-funded startups vying for market share.

Fastly’s relatively small size and limited resources compared to larger competitors may hinder its ability to invest in research and development at the pace required to stay ahead in these rapidly evolving fields. Additionally, the company’s historical focus on content delivery may make it challenging to shift customer perceptions and position itself as a go-to provider for advanced security and compute services.

The need to balance investment in new markets with maintaining its core CDN business could also strain Fastly’s financial resources, potentially slowing its progress in these growth areas. Without a clear differentiation strategy and substantial market traction, Fastly may struggle to capture a significant share of these emerging opportunities.

Bull Case

How could AI-related workloads transform Fastly’s growth trajectory?

The rapid advancement and adoption of artificial intelligence technologies present a significant opportunity for Fastly to accelerate its growth. AI applications often require low-latency, high-bandwidth data processing capabilities, which align well with Fastly’s edge cloud platform strengths.

As companies increasingly deploy AI models at the edge for real-time decision making, personalization, and data processing, Fastly could see a surge in demand for its services. The company’s global network of edge servers positions it well to support distributed AI workloads, potentially attracting new customers and driving increased usage among existing clients.

Moreover, the integration of AI capabilities into Fastly’s existing security and content delivery offerings could enhance their value proposition, leading to higher customer retention rates and increased average revenue per user. If Fastly can successfully capitalize on this AI trend, it could drive substantial revenue growth and potentially improve its market position relative to competitors.

What potential benefits could arise from the CDN industry consolidation?

The ongoing consolidation in the CDN industry, which has reportedly reduced the number of major players from six to three, could yield several benefits for Fastly. First, the reduced competition may lead to improved pricing power, allowing Fastly to potentially increase its margins or invest more aggressively in product development.

Industry consolidation often results in a more stable market environment, which could benefit Fastly in terms of customer acquisition and retention. As options for CDN services become more limited, enterprise customers may be more inclined to commit to long-term partnerships with established providers like Fastly.

Additionally, the bankruptcy of competitor Edgio presents an opportunity for Fastly to capture market share and potentially acquire valuable customer contracts. Analysts project that Fastly could secure up to $40 million in revenue from former Edgio customers, providing a significant boost to its top line.

This consolidation may also lead to increased merger and acquisition activity in the sector, potentially positioning Fastly as an attractive target for larger tech companies looking to expand their edge computing and content delivery capabilities.

SWOT Analysis

Strengths:

• Strong growth in non-top 10 customer revenue
• Expanding security business with 17% annual growth rate
• Global network of edge servers well-positioned for AI workloads
• Recent leadership changes maintaining continuity in turnaround efforts

Weaknesses:

• Dependence on traditional delivery services
• Need to refinance significant convertible debt
• Lower valuation multiples compared to software sector peers
• Historical inconsistencies in performance and growth

Opportunities:

• Potential revenue acceleration from AI-related workloads
• Market share gains from industry consolidation and competitor bankruptcies
• Expansion into security and edge computing markets
• Improved pricing trends due to CDN sector consolidation

Threats:

• Increased competition from hyperscalers in content delivery, security, and edge compute
• Deflationary pressures in core-CDN services
• Risk of losing large customers or failing to penetrate large enterprises
• Potential negative impact of higher interest rates on profitability

Analysts Targets

• KeyBanc Capital Markets: Sector Weight (June 17, 2025)
• KeyBanc Capital Markets: Sector Weight, $7.68 target (June 6, 2025)
• Piper Sandler: Neutral, $7.00 target (May 8, 2025)
• RBC Capital Markets: Sector Perform, $6.00 target (May 8, 2025)
• RBC Capital Markets: Sector Perform, $8.00 target (February 13, 2025)
• Raymond (NSE:RYMD) James: Market Perform (February 13, 2025)
• Piper Sandler: Neutral, $10.00 target (December 3, 2024)
• Oppenheimer & Co Inc: Outperform, $12.00 target (December 2, 2024)

This analysis is based on information available up to June 18, 2025. For comprehensive insights into Fastly’s financial health, valuation metrics, and growth potential, explore the detailed Pro Research Report available exclusively on InvestingPro. This report is part of our coverage of over 1,400 US stocks, providing institutional-grade analysis and actionable investment intelligence.

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