Fastly, Inc. (FSLY)·Q3 2025 Earnings Summary

Executive Summary

• Beat-and-raise quarter: Revenue $158.2M (+15% Y/Y) and non-GAAP diluted EPS $0.07 both exceeded S&P consensus; gross margin expanded to 62.8% non-GAAP, with record free cash flow of $18.1M . Q3 revenue beat S&P consensus of $151.0M* and EPS beat $0.0002* (Primary EPS) by a wide margin. Values retrieved from S&P Global.
• Mix shift to security and cross‑sell drove upside: Security revenue grew 30% Y/Y to $34.0M (21% of total), aided by a top-10 multi‑product win. Network services grew 11% Y/Y .
• Raised FY outlook and set Q4 guide: FY25 revenue raised to $610–$614M (from $594–$602M), non-GAAP operating income to $9–$13M (from $(9)–$(3)M), and non‑GAAP EPS to $0.03–$0.07 (from $(0.10)–$(0.04)); Q4 revenue guided to $159–$163M and gross margin ~61.5% ±50 bps .
• Key catalysts: accelerating security momentum, sustained margin gains (scale and traffic engineering), bookings linearity in Q3, and an in‑line Q4 revenue guide (midpoint near S&P $161.3M*) supporting estimate revisions upward. Values retrieved from S&P Global.

What Went Well and What Went Wrong

• What Went Well
  • Record revenue, operating income and free cash flow; non‑GAAP GM 62.8% (up 380 bps Q/Q) and non‑GAAP op income $11.6M vs $0.8M in 3Q24 .
  • Security growth +30% Y/Y to $34.0M (21% mix), driven by cross‑sell and new capabilities (API Discovery, deception in Next‑Gen WAF, DDoS Precise Defense); CEO: “We’re winning business… Security revenue growth of 30% Y/Y…” .
  • Cash generation inflected: CFO highlighted CFFO $28.9M and FCF $18.1M (vs $(7.1)M in 3Q24), plus adequate liquidity to address $188M 0% converts due Mar‑2026 .
• What Went Wrong
  • Pricing decline persists (albeit moderating): CFO noted pricing declines at the favorable end of high‑teens Y/Y; Q3 GM also benefited from a $1.6M non‑recurring tailwind (gross margin would be ~61.8% ex‑tailwind) .
  • Top-10 concentration still meaningful at 32% of revenue; growth in non‑top‑10 outpaced top-10 (17% vs 12% Y/Y), implying broader base strength but reliance on large accounts remains .
  • RPO methodology correction: company recast RPO for prior periods due to contracts with termination‑for‑convenience; LTM NRR improved to 106% but normalization continues from 2024 headwinds .

Financial Results

Key financials (USD Millions, except per-share and %). Periods are chronological (oldest → newest):

Q3 2025 actual vs S&P consensus:

Values retrieved from S&P Global.

Segment revenue (USD Millions):

KPIs:

Notes on non‑GAAP: In 2025, Fastly began excluding amortization of capitalized stock‑based compensation from non‑GAAP metrics and recast prior periods accordingly .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered record revenue, operating profit and free cash flow… accelerating growth and achieving operating leverage.” – CEO Kip Compton .
• “Gross margin was 62.8%… with a $1.6M non‑recurring cost of revenue tailwind; ex‑tailwind ~61.8%… pricing declines moderated to the favorable end of our typical high‑teens Y/Y declines.” – CFO Richard Wong .
• “Security revenue of $34 million grew 30% year‑over‑year, comprising a record 21% of our total revenue.” – CFO .
• “For perspective, the U.S. traffic of ByteDance… represented less than 2% of our revenue in the third quarter… we will once again incorporate all sources of ByteDance revenue into our forward guidance.” – CFO .
• “Our cross‑sell motion accelerated this quarter, highlighted by a major multi‑product win with a top 10 strategic account.” – CEO .

Q&A Highlights

• Durability of security strength: Management confirmed no one‑time recognition; security deals are recurring and Q3 benefited from early‑quarter bookings linearity; expect to sustain focus on security growth .
• Seasonality and Q4 guide: Network services seasonality appears normal; Q3 was stronger than typical, and Q4 guide reflects prudence with sequential growth off a higher base .
• Margin drivers: Beyond the $1.6M tailwind, margin gains came from scale and traffic engineering (efficiency) initiatives; Q4 GM guided roughly flat to Q3 ex‑tailwind .
• Competitive landscape: Limited impact expected from Quilt’s changes; prior tailwinds from edge yield noted .
• Net retention trajectory: LTM NRR improved to 106%; company expects further improvement into Q4 as 2024 headwinds roll off .

Estimates Context

• Q3 performance vs S&P consensus: Revenue $158.2M vs $151.0M*; EPS $0.07 vs $0.0002* – substantial beat on both. Values retrieved from S&P Global.
• Q4 setup: Company revenue guide $159–$163M brackets S&P consensus $161.3M*; EPS guide $0.04–$0.08 vs S&P EPS $0.0558*; non‑GAAP GM guided ~61.5% ±50 bps . Values retrieved from S&P Global.
• Implication: Estimate revisions should move higher for FY revenue, EPS, and FCF (new FY25 FCF $25–$35M) given raised guide and margin execution .

Key Takeaways for Investors

• Security-led mix shift is driving growth and margin expansion; security at 21% of revenue (+30% Y/Y) supports multiple and durability .
• Operating leverage turning: non‑GAAP operating income positive and rising, with disciplined opex and bookings linearity aiding flow-through .
• Free cash flow inflection: Q3 FCF $18.1M; FY25 FCF guide $25–$35M underpins balance sheet flexibility and 2026 converts de‑risking .
• Q4 guide is in line with consensus at the midpoint and embeds normalized seasonality; near‑term trading likely keyed to sustained security momentum and gross margin maintenance .
• Watch pricing dynamics and ex‑tailwind margin; management noted moderated declines and structural efficiency drivers (traffic engineering) .
• RPO recalibration doesn’t change demand signals; LTM NRR improving (106%) with potential to trend higher as 2024 headwinds roll off .
• International expansion (APJ leadership) and partner certification program broaden distribution and services capacity for security implementations .

Additional Items

• Other relevant developments: Launched Fastly Certified Services Partner Program to expand partner‑led security implementation capacity .
• Prior quarters for trend analysis: Q2 2025 revenue $148.7M, non‑GAAP GM 59.0%, FCF $10.9M; Q1 2025 revenue $144.5M, non‑GAAP GM 57.3%, FCF $8.2M .

Values retrieved from S&P Global where starred (*).