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Fastly (FSLY) Q3 Earnings Miss, Revenues Match Estimates

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Fastly (FSLY - Free Report) reported third-quarter 2020 non-GAAP loss of 4 cents per share that missed the Zacks Consensus Estimate by 300%. The company had reported loss of 9 cents per share in the year-ago quarter.

Revenues of $70.6 million matched the consensus mark and jumped 41.9% year over year.

Fastly stated that lower traffic from its largest customer - TikTok (10.8% of revenues for nine months ended Sep 30) - due to the U.S.-imposed ban negatively impacted growth. The company expects traffic reduction to continue in the fourth quarter of 2020.

Fastly’s third-quarter results also suffered from lowered traffic from a few existing customers.

Nevertheless, customer count increased to 2,047, up from 1,951 at the end of the previous quarter. Moreover, total-enterprise customer count increased from 304 in the second quarter to 313 in the reported quarter.

Fastly, Inc. Price, Consensus and EPS Surprise

 

Fastly, Inc. Price, Consensus and EPS Surprise

Fastly, Inc. price-consensus-eps-surprise-chart | Fastly, Inc. Quote

Average-enterprise customer spending was roughly $753K, up from $716K in the previous quarter. Markedly, enterprise customers generated 88% of Fastly’s trailing twelve-month total revenues.

Quarterly Details

Dollar-based net expansion rate was 147% in the quarter under review, up from 137% reported in the previous quarter. However, net retention rate was 122%, down from 138% reported in the previous quarter.

As of third-quarter 2020, Fastly was operating in 55 markets, providing access to 106 Tb/sec of global network capacity.

Gross margin in  fiscal third quarter expanded 370 basis points (bps) year over year to 59.8%.

Adjusted EBITDA was $0.8 million against adjusted EBITDA loss of $4.9 million.

Research & development expenses as percentage of revenues decreased 270 bps year over year to 19.7%.

Sales & marketing expenses as percentage of revenues was 27.4%, down from 33.4% in the year-ago quarter.

General & administrative expenses as percentage of revenues expanded 40 bps to 18.6%.

Operating loss was $4.2 million compared with $8.9million reported in the year-ago quarter.

Balance Sheet and Cash Flow

Fastly had cash and cash equivalents of $472 as of Sep 30, compared with $384 million as of Jun 30.

Cash flow from operating activities was $27 million against $3.1 million of cash flow used in operating activities reported in the year-ago quarter.

Free cash flow was $13.4 million against free cash outflow of $8.9 million in the year-ago quarter.

Guidance

For the fourth quarter of 2020, revenues are expected to be $80-$84 million. Adjusted loss is projected between 8 cents and 12 cents per share.

The Zacks Consensus Estimate for fourth-quarter revenues stands at $83.1 million, indicating 41.1% growth from the figure reported in the year-ago quarter. The consensus mark for loss is pegged at 2 cents per share compared with loss of 10 cents reported in the year-ago quarter.

Fastly expects fiscal 2020 revenues of $288.2-$292.2 million (down from previous range of $290-$300 million). Non-GAAP operating loss is expected to be $19.1-$23.1 million (down from previous guidance of $2-$12 million).

Adjusted loss is estimated to be 17-21 cents (down from previous guidance of 1-6 cents per share).

The Zacks Consensus Estimate for 2020 revenues stands at $290.5 million, indicating 44.9% growth from the figure reported in the year-ago quarter. The consensus mark for loss is pegged at 6 cents per share compared with loss of 52 cents reported in 2019.

Fastly continues to expect annual capital expenditures as a percentage of revenues to be roughly 13-14% of revenues. In the long term, the company expects capital expenditures to approach 10% of revenues on a calendar-year basis.

Zacks Rank & Stocks to Consider

Fastly currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are CDW Corporation (CDW - Free Report) , Qorvo (QRVO - Free Report) and Himax Technologies (HIMX - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CDW, Qorvo and Himax are scheduled to report their quarterly earnings on Nov 2, 4 and 12, respectively.

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