Key Highlights

  • Fastly trades roughly 183% higher over twelve months on aggregated market data data.
  • The figures below cover the quarter ended from the Form 10-Q filed.
  • The simplest bull argument is that operating leverage has arrived. Revenue rose 20% in the March quarter while cost of revenue fell in dollar terms.
  • The top 10 customers supplied 34% of first-quarter revenue, up from 31% in the June 2025 quarter, and 634 large customers produced 94% of the total.

A 180% rally that the filings have started to justify

Fastly trades roughly 183% higher over twelve months on aggregated market data data. The shares have ranged between US$6.29 and US$34.82 in the past year, capturing how far out of favour the edge cloud provider had fallen and how sharply sentiment has turned.

What changed sits in the accounts. For the year Fastly (NASDAQ:FSLY) reported revenue of US$624.0m, up about 15%, and its first full year of positive non-GAAP operating income at US$22.4m, against a US$22.0m loss in 2024. Free cash flow swung to a positive US$45.8m from negative US$35.7m.

What the company does

Fastly, headquartered in San Francisco, runs an edge cloud platform: a global network of servers sitting between a customer's infrastructure and its users. Traditionally that meant content delivery, or caching web pages and video closer to the audience so they load faster.

Revenue now reports in three lines. Network services, the delivery and performance business, generated US$126.2m in the first quarter of 2026. Security, web application and API protection, bot management and denial-of-service mitigation, contributed US$38.8m. A third line, covering Compute and observability, added US$8.0m.

Billing is largely usage-based, on traffic and requests rather than seats, so results track customer volumes. The United States supplied 71% of first-quarter revenue. Fastly competes with Akamai, Cloudflare and the hyperscalers' edge offerings.

Latest financial and operating performance

The figures below cover the quarter ended from the Form 10-Q filed. Revenue reached US$173.0m, up 20% from US$144.5m a year earlier, with security growing 47%, compute and observability 67%, and network services 11%.

Gross margin is where the turnaround is clearest. Reported gross margin was 62.5% against 53.2%; on a non-GAAP basis 65.1% versus 57.3%. Cost of revenue fell in absolute terms, to US$64.8m from US$67.7m, even as revenue rose a fifth.

The operating loss narrowed to US$23.9m from US$38.2m and the net loss to US$20.5m, or US$0.13 a share, from US$0.27. Non-GAAP operating income was US$19.1m against a US$5.8m loss, and adjusted EBITDA US$29.5m versus US$7.8m.

Operating cash flow rose to US$28.9m from US$17.3m, but capital expenditure jumped to US$24.8m from US$9.1m, leaving free cash flow of US$4.1m against US$8.2m. Fastly ended March with US$330.5m of cash and marketable securities and US$323.6m of net long-term debt.

The last-twelve-month net retention rate, measuring what existing customers spend relative to a year earlier, reached 113% from exactly 100%. Remaining performance obligations, or contracted revenue not yet recognised, stood at US$368.7m, 63% higher. Large customers, those spending above US$100,000 annualised, numbered 634 and produced 94% of revenue.

The catalyst: machine traffic, and an outlook already raised

In February 2026 Fastly guided to 2026 revenue of US$700m-US$720m and non-GAAP operating income of US$50m-US$60m. Three months later it lifted both, to US$710m-US$725m and US$58m-US$68m, with non-GAAP earnings of US$0.27-US$0.33 a share.

The strategic argument rests on machine traffic. Research Fastly published found that requests from AI systems on its network grew roughly 30% between January and May 2026, about 6.5 times faster than human traffic, and that more than 51% of AI requests reached the origin server, against under 9% of human requests.

That distinction matters commercially. Cached human traffic is cheap to serve and relentlessly deflationary in pricing, which is much of why delivery revenue stagnated for years. Requests that bypass the cache are harder to serve and sit closer to the higher-margin security and compute products. Hence Bot Management with Content Guard, which blocks unauthorised AI agents, an Agent Toolkit for AI coding agents, and a June 2026 partnership with Skyfire on agentic commerce.

Chief executive Kip Compton, promoted in June 2025 when Todd Nightingale stepped down, has told investors Fastly anticipates AI as an increasing tailwind.

The bull case

The simplest bull argument is that operating leverage has arrived. Revenue rose 20% in the March quarter while cost of revenue fell in dollar terms. If that structure holds, the guided US$58m-US$68m of non-GAAP operating income is a floor rather than a ceiling.

The mix is also shifting towards products investors value more highly: security plus compute and observability rose from 21.6% of revenue in the March 2025 quarter to 27.0% a year later. Net retention of 113% and backlog up 63% indicate existing accounts are expanding, not just renewing.

The bear case and the risks

Concentration remains material. The top 10 customers supplied 34% of first-quarter revenue, up from 31% in the June 2025 quarter, and 634 large customers produced 94% of the total. No single customer exceeded 10%, but on a usage-based model a few large platforms rerouting traffic can move a quarter.

Second, the legacy business is not obviously growing. Network services fell sequentially, to US$126.2m from US$130.8m in December 2025, and grew only 11% year on year. At roughly 73% of revenue, it leaves security doing heavy lifting.

Third, the capital structure embeds dilution. Fastly has US$150m of 7.75% notes due June 2028, convertible at US$19.74 a share, and US$180m of zero-coupon notes due December 2030 convertible at US$15.26, both strikes below the current price. The 10-Q identifies 19.4m shares tied to the notes within 37.6m potentially dilutive securities, against 156.5m outstanding.

Fourth, guidance implies deceleration, its midpoint representing about 15% growth against the 20% delivered in March. Fastly also remains loss-making on a statutory basis, with an accumulated deficit of US$1.14bn and share-based compensation near a fifth of quarterly revenue.

What investors should watch next

Second-quarter results. The measurable tests are revenue against guidance of US$170m-US$176m and non-GAAP operating income against US$12m-US$16m.

The network services line. Whether the sequential fall from US$130.8m to US$126.2m reverses will say much about the underlying delivery business.

Security growth and net retention. Both are the mechanism by which the AI thesis becomes revenue rather than narrative.

Capital intensity. Quarterly capital expenditure of US$24.8m is a step change; the question is whether it converts into revenue or consumes the cash flow only just begun.

Investor Day, at the Nasdaq MarketSite in New York, the likely venue for medium-term targets.

Investor takeaway

The premise that Fastly has turned a corner survives inspection. Gross margin, non-GAAP operating income, net retention and contracted backlog have all improved materially, and the 2026 outlook has been raised once already. That is an operational turnaround, not a story.

Less settled is the price. At US$21.55 the shares trade on roughly 4.9 times trailing sales against a 52-week low of US$6.29, and aggregated market data records a consensus average target of US$24.40. The AI traffic data is real and directionally supportive, but Fastly has not separately quantified it as revenue. The question is whether security keeps compounding near 47% while delivery stagnates. This article is information only and is not investment advice.

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy, sell, or hold any security. Share prices can rise or fall, and past performance does not guarantee future results. Investors should conduct independent research and consult a licensed financial adviser before making investment decisions.