Earnings Call Transcript - FSLY Q4 2020

Operator, Operator

Good afternoon, my name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Fourth Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Maria Lukens, Vice President of Investor Relations. Please go ahead.

Maria Lukens, Vice President of Investor Relations

Hi everyone, thank you for joining our fourth quarter and full year 2020 earnings call. We have Fastly CEO, Joshua Bixby, and CFO, Adriel Lares, with us today. Before we start, I want to remind everybody about the usual format of our call. We published a shareholder letter on our investor relations website and with the SEC about an hour ago. Since the letter provides a lot of details, we'll make some brief opening remarks and reserve the rest of the time for your questions. During this call, we will be making forward-looking statements, including statements related to the expected performance of our business, future financial results, the integration of Signal Sciences strategy, launch and growth, and overall future prospects. These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. Please take a look at our filings with the SEC and our Q4 2020 shareholder letter for a discussion of the factors that could cause our end results to differ. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligations to update any forward-looking statements except as required by law. Also during the call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call is being webcast and will be archived on our website shortly afterwards. With that, I'll turn the call over to Joshua.

Joshua Bixby, CEO

Thanks, Maria. Hi everyone and thanks for joining us today. We had a busy and successful quarter and its reflected in our results. We delivered 40% year-over-year top line growth with revenue of nearly $83 million. Last year, our world changed and businesses changed with it. We saw many companies invest more heavily in their digital presence than ever before. Subsequently, we've added new customers while our existing customer base grew. These customers include Blackboard, a top tier learning management system; UC Davis, a higher education institution; an enterprise tech company, and one of the world's largest telecommunication companies among others. We're also gaining traction in the rapidly growing gaming vertical and have secured new business with two leading gaming companies. We've also seen our customers go above and beyond to help their communities during these challenging times. Two stories that encourage me are from Gannett and Doximity. Gannett, a leading media and publishing company launched Support Local, which allows people to support their neighborhood businesses through gift cards as well as Take Action, which provides resources for those looking to step up when it comes to social and racial justice. We're proud to have supported them in getting these sites up and running in a matter of days. Doximity, a company that helps medical professionals virtually connect with patients, saw double-digit user growth and a 30-times increase in traffic on their secure calling feature within just a few weeks with the onset of the pandemic. They turned to our security offerings, which provided them the control they needed to block malicious traffic, all while ensuring reliable connectivity to patients at a time when it was needed the most. Our other customers delivered breaking news during the crucial election, brought people together through virtual gatherings, helped entertain and educate through gaming and schooling, and enabled a busy holiday shopping season all online. On a Fastly-only basis, we've continued to demonstrate the stickiness of our platform, resulting in a dollar-based net expansion rate of 143%, average enterprise customer spend of $782,000, and a very impressive annualized revenue retention rate of 99%. Like others, we transitioned our Cornerstone customer event, Altitude, online for the first time in November. The community around developer empowerment was reflected in the audience, which nearly doubled from previous in-person events. We heard from leading digital brands such as USA Today, Vox, PayPal, GrubHub, Adorama, TED, and the Massachusetts Institute of Technology based in Cambridge. The event made it clear that edge innovation and security enabled their digital transformations and successes during the challenging year. Adriel will cover our financial performance for both the fourth quarter and full year in more detail. But before he does, I want to take a moment to provide an update on two core pillars of our comprehensive Edge Cloud platform: compute and security. As we announced last quarter, Compute Edge is in the market running production traffic in multiple verticals. We've seen some incredibly innovative use cases from developers. I have recently seen an edge-native multiplayer version of the popular video game, Doom; a machine learning product used to identify objects in images at the edge, and a system that automatically simplifies text on websites for new language learners. One of the most compelling use cases I've witnessed is a dynamic ad insertion product focused on personalized video ads based on user-specific criteria, all done in real-time at the Edge. Developers use three key languages to build these use cases: Assembly Script, which is a great entry point for JavaScript and TypeScript developers, as well as C and Rust. We continued our investment in technical talent by hiring several key open-source and community leaders, including the co-creators of web assembly. They will continue working on impactful open-source projects such as Wasm Time, the Rust language, and the web assembly standard itself, all of which are key technologies for the future of Compute Edge. On the security front, I'm very excited about the progress we've made since we closed our transaction with Signal Sciences last quarter. The cross-sell and upsell of our new security portfolio exceeded our expectations in the quarter, and the pipeline is strong. There is no security without usability, and Signal Sciences' single, intuitive, easy-to-use interface has begun to impress our existing customer base and prospects and was recognized industry-wide by Gartner as a visionary in its annual Magic Quadrant. We continue to see excellent customer reviews on Gartner peer insights, a popular peer-driven rating and review platform. We are gaining momentum with these two pillars, and the increased interest and enthusiasm from our customers is very exciting. The demand for Fastly’s platform remains strong as more companies are beginning to realize the tremendous potential at the Edge. Both our Compute and secure offerings will continue to be key areas of focus and investment for us going forward. Before I turn it over to Adriel, I also want to welcome Brett Shirk to Fastly as our new Chief Revenue Officer. He will be starting officially on February 22. Brett brings extensive experience in building and scaling revenue organizations at cloud and security companies and has more than 25 years of technology experience, having recently served as CRO at Rubrik. Brett is a highly experienced, purpose-driven executive and is acutely aligned with our values and mission. We are happy to have him on board. With that, I'll turn it over to Adriel to go over the financials.

Adriel Lares, CFO

Thank you, Joshua. And thank you everyone for joining us today. We rounded up the year with another strong quarter driven by robust customer demand, particularly from both new and existing enterprises that are continuing to integrate Fastly’s modern edge platform into their systems. As I go through the numbers, I want to point out as we noted in the shareholder letter that the contribution of Signal Sciences following our acquisition has been consolidated into our fourth quarter financial information. So the revenue and margin numbers I'm about to share include Signal Sciences. However, we have not yet included Signal Sciences in most of our key metrics this quarter and intend to report consolidated metrics later in 2021. In order to see the incremental contribution on customer growth from Signal Sciences, we have provided their total customer counts and number of enterprise customers as of Q4 2020. This quarter, we generated $83 million in revenue, net of the $2 million deferred revenue write-down related to purchase accounting adjustments from Signal Sciences’ acquisition, representing 40% year-over-year growth. For the full year 2020, we generated $291 million in revenue, up 45% year-over-year. We're continuing to drive leverage in the business. GAAP gross margin is 59.2% for the quarter, up from 56.7% in the same quarter a year ago, and 58.7% for the full year, up from 55.9% for 2019. Non-GAAP gross margin, which excludes stock-based compensation and amortization of acquired intangible assets, was 63.7% for the quarter, compared to 57.6% in the same quarter last year. Full year non-GAAP gross margin was 60.9% compared to 56.6% for 2019. While our gross margin will continue to be impacted by the timing of personnel and infrastructure-related investments, as well as seasonal usage by customers on our platform, we remain confident in our ability to deliver incremental annual gross margin expansion, as we have done in the past, driven by our continued scale and the acquisition of Signal Sciences. We believe the strong gross margin profile of Signal Sciences provides us with additional opportunities to invest and accelerate our growth trajectory. We believe we have a tremendous opportunity to invest in growth in 2021 and plan to do so in a disciplined manner while keeping long-term profitability in mind. In terms of the launch, we ended the quarter with $216 million in cash, restricted cash, and investments. As I said on our last call, we used approximately $200 million of cash at the beginning of the quarter upon closing of the Signal Sciences acquisition. As we continue to see strong growth and increased demand for our Edge Cloud platform, we aim to capitalize on this opportunity and continue investing in initiatives to drive revenue growth, network utilization, and scale. Our 2021 outlook reflects our continued ability to deliver strong top-line growth, our ongoing commitment to annual gross margin expansion, our ongoing investments in cloud computing and security, and the expansion of our extended team from the Signal Sciences acquisition. Similar to last year’s approach, we based our revenue guidance on the visibility that we have today. And given our usage-based business model, we expect to gain additional visibility as the year progresses. For the first quarter, we expect revenue in the range of $83 million to $86 million, non-GAAP operating loss in the range of negative $14 million to negative $10 million, and non-GAAP net loss per share in the range of negative $0.13 to negative $0.09. For the full year 2021, we expect revenue in the range of $275 million to $385 million, non-GAAP operating loss in the range of negative $50 million to negative $40 million, and non-GAAP net loss per share in the range of negative $0.44 to negative $0.45. Before we turn the call over to Q&A, I want to reiterate Joshua's conviction about the future of Fastly. We're extremely excited about the opportunities that lie ahead as we continue to augment our compute and security offerings. We believe we are well-positioned for long-term growth and success as we help enterprises innovate through developer empowerment. The quality of our offerings, as well as our team's ability to execute, will continue to move us forward as we work to build a more trustworthy internet for our customers. With that, I'll turn it back to the operator to take your questions.

Operator, Operator

Your first question comes from the line of Jonathan Ho with William Blair. Your line is open.

Jonathan Ho, Analyst

Hi, congratulations on the strong quarter. I just wanted to start out with maybe your guidance on the CapEx side of things. And just, trying to understand, why you have, sort of the confidence level to sustain at a higher level, you're just given some of the headwinds that you're facing from a capacity standpoint, from that large customer last year, as well as in maybe some tough, tougher COVID comparisons.

Joshua Bixby, CEO

Oh, sorry, it’s Joshua. Jonathan, are you saying why is that number not higher or lower? I just wanted to understand the crux of the claim.

Jonathan Ho, Analyst

Oh, and so in terms of sustaining bonds at 10%, sort of long-term target, what's giving you the confidence to keep that number higher?

Joshua Bixby, CEO

Oh, I see, got it. Yes, I mean, I think where that's really coming from is just the makeup of the customers that we have brought on board, some of the guidance that they're giving us with respect to what they're trying to do, what we're seeing in the customers themselves. And, as you've heard from me in the past, the CapEx as a percentage of revenue that we have today is still meaningfully lower than what's exceeding some legacy providers that already exist out there. In our long-term model, we think we can get to 10%, while still growing relatively quickly. So we're, in some respects, keeping in mind what we've seen so far, particularly in Q4, but also some of the signals that our customers are currently telling us today, which is built into our guidance.

Jonathan Ho, Analyst

Got it. And then, just in terms of a follow-up, can you give us a little bit of an update on your large customer and maybe what your expectations at this point are in terms of either headwind for 2021 or contribution from that customer? Thank you.

Joshua Bixby, CEO

Yes. Hey, Jonathan, it's Joshua here. I appreciate the question. As we've talked about throughout this process, they remain an important customer to us. They continue to rely on us for important workloads, and that hasn't changed. As you know, it peaked above 10% for a short period at the start of the pandemic, but we have a number of large customers and a handful who may come in and out of that 10% category as they grow. As you know, when your services are software-based, global, and infinitely scalable on the Edge, and you're dealing with customers who are growing at unprecedented rates on a usage-based model, you're going to have variations over time. These customers, as you know, rely on us for performance, security, and reliability, and we're really proud to continue to be the solution that they trust. So we have modeled into our guidance, the relationship with this strong relationship, we've modeled in exactly what we've heard from that customer. And that's modeled into our guidance. So we feel optimistic.

Jonathan Ho, Analyst

Great, thank you.

Joshua Bixby, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Robert Majek with Raymond James. Your line is open.

Robert Majek, Analyst

Great, great thanks. Just wondering if you can give us any more color on Signal Sciences' revenue contribution in the quarter and what's baked into your guide for next year? And then on the expansion metrics, understand that you'll give us updated numbers that include Signal Sciences later in the quarter. But can we just say that Signal Sciences would have added to the net expansion rate?

Joshua Bixby, CEO

Adriel, do you want to go those two?

Adriel Lares, CFO

Sure. I'll address the second part of your question first. It's more likely to happen later in the year. The challenge we face with Signal Sciences is related to subscription-based products. We’re still determining how to balance that with the usage-based model our historical customers at Fastly are accustomed to. It will take some time to ensure we're careful about how we report those metrics together, especially as they start to combine as they have so far. Regarding Signal Sciences' contribution in Q4, at the beginning of the quarter, we had roughly $8 million in deferred revenue that we expected to recognize during Q4. However, we took a $2 million reduction related to the purchase price allocation. That should give you an idea of where we ended up. For the year, we're modeling based on the growth we've historically seen and what we've observed in Q4. Integrating that into current guidance is somewhat challenging, particularly because we’re already beginning to sell quite extensively with them. Historically, this situation resembles what we’ve encountered before.

Robert Majek, Analyst

Great, thanks. And maybe just one more from me. Voice chat rooms like Clubhouse and Twitter Spaces have been getting a lot of attention lately. It's widely speculated that Agora serves the traffic for Clubhouse. I'm just wondering if this vertical is a potential opportunity for Computed Edge just given how latency-sensitive this traffic is.

Joshua Bixby, CEO

Yes, it's Joshua here. Robert, I think we're seeing really interesting opportunities in all latency-sensitive environments. I want to highlight what we discussed in the opening and in the letter regarding gaming, where latency is critical for high-value games. One reason we're making significant inroads in that area is due to our performance and the reliability we provide. Additionally, as you mentioned, the advantages of Edge Compute are also important here. While I can't speak specifically about any customers, I believe the emergence of this medium is beneficial for our business and for computing.

Robert Majek, Analyst

Thanks a lot. I appreciate the call.

Joshua Bixby, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.

Timothy Horan, Analyst

Thanks, guys. Can you give us at a high level maybe a sense of how bookings and just how customer interest has been maybe in the second half of this year versus last year, just given the COVID impacts? And secondly, can you maybe just give us a little more color around revenue? Maybe what percentage of revenue is kind of tied to application delivery or making the buying versus subscription at this point? I know things are moving around a lot. Thank you.

Joshua Bixby, CEO

Sure, let me start on the first question. I think that, overall the revenue that we have continues to grow, as you saw in the quarter, and I think that continues to stay in that same range. We've talked in the past about half of our revenue being committed, which that remains the same while the other half is usage. When you look at the bookings and customer interest in the second half of this year versus last year, we're really happy and excited. And I talked about this in the opening remarks about the strength that we saw in the security side of the business that continues to build on itself, and the pipeline continues to build. We’re also starting to see a lot of interest in the compute capabilities that the business brings to the table. And I've been personally talking to customers about the security of our compute, the scale of our compute, and the performance of our compute; those three factors are really, really important in purchasing decisions. There are a lot of cross-sell opportunities that we're bringing, as we start bringing these multiple products to the table. Given that we're a cloud on ramp to the three major clouds, and we sell a full suite of transport security, computed edge products, and other services, we continue to see that grow. So really confident and optimistic in terms of how we sell that. Adriel, I’ll turn it to you in terms of percentage of revenue.

Adriel Lares, CFO

Sure. Thanks, Joshua. So, Tim, I think, if you're purely thinking Signal Sciences because you do have security revenue outside of that, but if you're just thinking Signal Sciences, it was less than 10% in Q4, primarily, just from the standpoint considering the top-level number, the amount of defer that we were going into and what would actually got recognized that $2 million. So it's sub 10%. Today, it's clearly growing quickly. And again, we're selling together with Signal Sciences. So it's going to be a little bit more difficult as we continue to sort of march 2021 separates the two, but at least it gives you a good sense of sort of where we're starting from.

Operator, Operator

Your next question comes from the line of Rishi Jaluria with D.A. Davidson. Your line is open.

Rishi Jaluria, Analyst

Thank you for your questions, and it's great to see the continued strong results. I wanted to ask about the net retention for the quarter. Looking at the NRR, even on a trailing 12-month basis, it showed a sequential decline from Q3. Could you provide more insight into what's happening with that metric? Is it mainly due to fewer expansions? We've previously mentioned a large customer that has had a significant impact on this. Any additional information would be appreciated. I also have a follow-up question.

Joshua Bixby, CEO

Sure, Adriel, you want to take a first crack at that?

Adriel Lares, CFO

Certainly, hey, Rishi. So recall that the NRR takes the end of the month. In particular, last year, sort of our denominator impacted that number for Q4. We did have a decent sized live event that was nice and good for the ending quarter of Q4 2019, but it did impact that particular month. So that's why you sort of see a decline. It wasn't necessarily related directly to a sort of our largest customer. However, I would like to make two points in addition to that. If you look at the LTM, and our version that we also published, which is 156.5%, that still showed good strength over 2020 over 2019. But as we move further into 2021, there will be some instances if we have, especially as we move into Q2, Q2 was a particularly strong growth, particularly related to COVID. So you may see some impacts in that quarter in NRR and DBNER, but I just want to sort of give you some sense of some of the impacts that you may see. But at least for Q4, there's nothing there that I saw as sort of negative or much more optimistically, especially when you consider the LTM version of that.

Rishi Jaluria, Analyst

That's helpful. And then, Joshua, you highlighted both on the prepared remarks and in the shareholder letter some of the strength that you saw in gaming. I believe, historically, this hasn't been a huge vertical for you, but clearly seem to be getting a lot of real traction there. How are you thinking about the gaming opportunity long-term, and maybe what's changed that it's made it a more attractive and presumably less commoditized opportunity than maybe it historically has been? Thanks.

Joshua Bixby, CEO

Yes. Rishi, great question. I think this market has two sides to it, right, as the media market does, which is there is a commodity side, and Fastly spends our time and energy certainly on the value side. I think what's changed is two things. The first is gaming companies are realizing that the performance, and particularly the low latency aspect of performance, is just more and more important than it ever was. And so there's an element there where as you are trying to drive latency out and reliability up, you start looking around the market, and as you know, there not a lot of options to do that at scale and at a global scale. So that's one element. I think the other element that's really interesting is the opportunities for compute in this market. Where traditionally we have seen this market do a lot at the server side and in a lot of markets, this one included, people are now seeing this incredible opportunity to bring logic and compute to the Edge. And that's sparking a real transformation. Imagine a Tory process for people like what if. And what if, I mentioned it, but I, I saw a multiplayer version of Doom, all running on Compute at the Edge. When you look at those types of use cases, it really transforms how gaming can work in the future. Gaming companies are always reaching for the future. I mean, they often are the trailblazers in this area. So I think there's a trailblazing element which is grabbing attention through compute. And there's also this need for low latency and high performance, which just continues to ramp up. Those are two reasons that we're certainly seeing, and I'm seeing in the discussions I'm having that’s exciting.

Rishi Jaluria, Analyst

Right, that’s really helpful. Thank you so much, guys.

Joshua Bixby, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Jeff Van Rhee with Craig-Hallum. Your line is open.

Jeff Van Rhee, Analyst

Great, thanks. A couple quick questions. First, I guess, Adriel as it relates to 2021. If I looked at the non-GAAP operating loss, it looks like there's what, maybe, I don't know, $20 million or so more spending there relative to where the street was. Just curious if you could break that down by line out of where you think that's going to fall. What exactly are you spending more on just a little color there would be helpful. And then congrats on the hire. Obviously, Brett joining the team brings a lot of skills, just curious, any previews in terms of additional areas of focus out of the gate, things that might change here?

Joshua Bixby, CEO

Sure, Adriel, why don't you go on this one. And I'll go take the Brett question after.

Adriel Lares, CFO

Yes, primarily, the driver for the spin. If you look at our Q4 non-GAAP operating burn, it basically gives you a bit of a preview with our expanded acquisition and the expenses brought on with the Signal Sciences team. It's really sort of acceleration, the investment into that, but it's really driving where we are in 2021. And another way to sort of put this in perspective, as well as a non-GAAP operating loss in 2019 with what was 9% or 17%. If you look at the year 2020, it was minus sort of nearly 6%, about 5.8%. So there's a little bit of we kind of got a little further ahead and sort of share your preview at scale that business can look like, but we still want to invest in, you're still on a path to eventually get to profitability. And I think 2021 is still within that path. But in terms of the breakdown, I don't know that the category is going to look all that different than where historically, we want to spend certainly more into brand and marketing to go after the security cameras or people going after as well as computer. So we've got some spending in there. The R&D effort that comes with the engineers and production, Signal Sciences, and certainly an additional investment we want to push into. And I think G&A is an area where we do want to get some leverage; it's going to take us a little bit longer. In 2020, we want to make some investments there so that we can continue to scale that area. But right now, a couple of which our ultimate path. And again, Q4 provides a good sort of preview as the launching pad for 2021.

Joshua Bixby, CEO

Yes, and on Brett, I mean, I'm thrilled about that announcement. As you know, this has been a process for us to really get the right person. In terms of focus areas, we see just a tremendous opportunity on the security lead story arc here. I've started to talk to customers who are not only using us for their web and API security but certain of their IT applications and IT workloads. I think that's a really interesting area of expansion for us. If you think about us being the on-ramp to the three major clouds and a full suite of transport, security, compute features, there's still a lot to do in terms of getting out there and having that message be heard. So, a really strong focus on landing new customers, a continued focus on ensuring that the customer experience that we have, and that's highlighted by a 99% revenue retention rate, which is tremendous, that we keep that as we grow. So, as Adriel said, we're going to continue to invest here. We are just over the moon with the Signal Sciences team. And feel so thrilled that they're here. There's still work to do integrating them. But I'm really excited about the security lead side. And when we look at the compute side of our business, that really allows us to democratize some of our work. So where can we attract more developers at scale? I think those are two areas that he's definitely going to be focused on.

Jeff Van Rhee, Analyst

Great. Very helpful. Thanks.

Joshua Bixby, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.

Ray McDonough, Analyst

Great, thanks. This is Ray McDonough on for Brad. Maybe one for Joshua to start. In the shareholder letter, you briefly mentioned that you've developed methods to leverage the platform to deliver streaming traffic in a more scalable and profitable way. Can you provide some color on what those methods entail? How that might impact, if at all, the type of traffic you're willing to take on? If that changes the way you think about the price points of which you're willing to take on various types of traffic?

Joshua Bixby, CEO

Yes, Ray. That's a great question. I'm really proud of the work we're doing in this area. We've discussed several components, including Precision Path. Since Fastly began, we've been focused on how to deploy as efficiently as possible, maximize the value from our network and bandwidth, and incorporate self-healing capabilities into our network. Efficiency and optimization have always been key considerations, reflected in the number of points of presence, servers, and personnel we have. Our goal is to spend our time and energy on the high-value segments of the market. The value we bring is evident in the gross margin leverage we demonstrated in Q4, showing there's significant high-value business available. As I mentioned earlier regarding the gaming sector, more people are recognizing the importance of performance. This trend is continuing to develop, and 2020 was a pivotal year for this focus. Examples of this include Precision Path and our support, all aimed at being better, faster, and more reliable. We're always evaluating efficiency from the day this business started, aiming to get the most out of our hardware. This approach does not alter our focus or the types of customers we pursue; we will not shift to the lower end of the market. Instead, we will maintain our emphasis on where we currently are. As Adriel mentioned, we'll keep demonstrating gross margin leverage toward our midterm goal of a 70% gross margin, and we're making progress in that area.

Ray McDonough, Analyst

That's helpful. If I could maybe a follow-up for Adriel, and just to build on Robert's question around guidance and what's included from a Signal Sciences perspective. Is it fair to grow what seems like a $6 million contribution this quarter to something where we get to something like $30 million or $40 million in organic contribution from Signal Sciences in 2021? And maybe you can kind of comment on that gross margin impact. Should we expect incremental expansion on the core Fastly business, as we think about 2021 and layering in Signal Sciences?

Adriel Lares, CFO

Yes. I would think about it, just given that it’s clearly in year. And as you recall last year when I gave guidance for 2020, I clearly saw the idea of work sort of coming up for all of us. But that kind of guided at sort of 30-ish percent annual range for growth. I think I'm trying to take a similar tack this year for the overall business. That’s actually including Signal Sciences. So they were growing clearly quite fast when the acquisition was first announced. For now, just given that, it's clearly, we are trying to emphasize the cross-sell possibilities. I would sort of stick at least for now at a high level just kind of incorporate in together with us. As we get a little bit further into the year, we can give a little more perspective in terms of what we've seen this last quarter was great in terms of just the initial indications about our ability to sell together with Signal Sciences. But we're now sort of one team. At least as far as guidance, I would sort of keep to where we are today.

Ray McDonough, Analyst

Okay, great. Any thoughts on just core Fastly margins and expansion there?

Adriel Lares, CFO

Yes. I think from a sort of core margins standpoint, there's certainly, as Joshua just pointed out, there's reasons for optimism. At this point, when I think about it from an overall gross margin standpoint for 2021, I still feel good about adding somewhere 100 bps and more. But again, I want to sort of see the next for us, what really matters? What's the mix both in the type of traffic we have and that we have Signal Sciences, which will be incremental to that and additive to that. But we have a little bit more time as we get further into the year.

Operator, Operator

Your next question comes from the line of Will Power with Baird. Your line is open.

Charlie Erlikh, Analyst

Hey. This is Charlie Erlikh on for Will. Thanks for taking the question. I was hopping to ask you a question about guidance. Maybe just what's contemplated in the revenue guide in terms of the macro environment and COVID-19 in terms of opening up and potentially starting to work from the office and whatnot? But you can maybe talk about some of the assumptions you're making in the 2021 guidance in terms of those factors?

Joshua Bixby, CEO

Sure. Adriel, why don't you start?

Adriel Lares, CFO

Sure. I think my previous answer is relevant here. We're being cautious about our visibility at this moment. We have a bit more clarity regarding Q1 based on what we have observed so far. From a macro perspective, we are certainly aware of what others are saying about some other Legacy CDNs and their assumptions. With vaccines being distributed, I personally hope for a more normalized year. For now, we're not expecting anything faster than that. This is why we see our guidance numbers as they currently are. However, as we progress through the year, we will gain a better understanding of the environment and how our growth rate may exceed our initial expectations.

Charlie Erlikh, Analyst

Okay. That makes sense. And is there any way to maybe think about potential contribution from Compute@Edge in 2021 revenue? Or is it just mainly ramping in 2021 and then seeing more meaningful impact in 2022? How should we think about the contribution from that?

Adriel Lares, CFO

My perspective on that is that we are still in the learning phase this year. In 2021, we gained some early insights from other customers, which could lead to meaningful contributions later in the year. However, I see 2021 primarily as a time to understand the use cases and data opportunities we can leverage as we move into 2022 and beyond.

Operator, Operator

Your next question comes from the line of James Fish with Piper Sandler. Your line is open.

James Fish, Analyst

Hey, guys. First, our understanding there are a few larger media renewals often in Q4 and actually for the first half of the year. How have you and are you approaching those renewals? And specifically, what are you guys seeing around pricing, given a lot of noise out there?

Joshua Bixby, CEO

Yes, it's Joshua here. We have renewals scheduled throughout the year, including Q4. In Q4, we expect to see an increase in gross margin and usage. We feel confident about our past performance. Looking ahead, our innovations continue to add value. There is a commoditized delivery business in the market that we have opted not to pursue, and that has proven to be a wise decision. We are focused on customers who prioritize the performance, security, and reliability of their content. We maintain a balanced approach and are committed to not engaging in deals that may harm the business, as premium content requires high performance and reliability. We remain optimistic about the future with no anticipated changes in this approach.

James Fish, Analyst

Got it. Understood. And then obviously, Brett comes from a good background at Rubrik. I guess what made you guys pick Brett? Is it more his background on sort of the storage and security side as you start to think about Edge compute and Edge Services? Or is it more like the enterprise experience or something else?

Joshua Bixby, CEO

Yes. It's really a combination of all of that. Plus, if you think about the VMware experience, the security experience and the Rubrik experience, what you get is? You get that enterprise understanding, security infrastructure, and you understand compute. You've seen fast-charging growth startups. You've seen around the corner to billions of revenue. All of that was really valuable to us. We understand as we grow, that we need to continue to invest and optimize. That's certainly going to be a theme for 2021, and he's the right leader for that. So really, it's the combination of all of those.

James Fish, Analyst

Thanks, Joshua.

Operator, Operator

There are no further questions at this time. Mr. Bixby, I turn the call back over to you for closing remarks.

Joshua Bixby, CEO

Before we sign off, I want to thank our employees, customers, partners, and investors. I'm extremely proud of all that our team has accomplished in a year filled with such uniquely challenging circumstances and unexpected road bumps. We're humbled to be both a witness and enabler for how we've supported our customers, many of them thriving, even under incredibly difficult circumstances. I look forward to seeing what lies ahead for all of us this year, and I hope to connect with many of you at the upcoming Morgan Stanley TMT Conference. Thank you.

Operator, Operator

This concludes today's conference call. You may now disconnect.