Fastly, Inc. (FSLY) September 2026 Conference Transcript

Awesome. Well, thanks for joining us, everybody. Jim Fish with Piper Sandler. I know we've got lunch coming up here shortly, but I have the privilege of chatting with Rich and Vern of Vasily ahead of this little Analyst Day. So we'll just do all the Analyst Day presentation right now, if you don't mind. But thanks for joining us. I've got a bunch of questions to run through, and I'll open it up if we've got some time at the end, if anyone in the audience has one. Rich, it's been a year at Fastly. This was the first conference you had when you first joined, so I appreciate you being back. One of the things that we're asking across companies this week is just how does the IT spending landscape look like across your install base? What's going on in terms of the impact of AI on budgets, whether it's from the delivery and networking side of things or even the security side for you guys?

Sure. I think overall, I think we're continuing to see strong, healthy demand for the spend that our customers are spending. We did 23% year-over-year growth, $183 million last quarter, and it was broad-based. It was actually across the three different product lines or revenue lines that we do. So delivery services grew 17% year-over-year. We had security growing 43% year-over-year, and we have other, which is primarily our compute. You know, I think that, like, from a demand perspective, we see it broad-based across all three areas, and we're also seeing, especially given the component shortages that are happening, you know, customers making more, willing to make more commitments. And so we see that kind of transpire in kind of the RPO and the CRPO. So, like, you'll see that the RPO grew 38% last, you know, quarter on a year-over-year basis, and then our current portion of the RPO grew 44%. So I would just say, you know, continued strong demand and pretty, you know, consistently across all the products and within even the willingness to do commits. Got it.

And I always think about sort of delivery businesses, you know, two subsegments, really. One being sort of the media use case that Fastly historically was known for, whether it's streaming or gaming. Obviously, some excitement with that this year in terms of some of the periodic events. Episodic. Episodic, sorry. And then the web delivery and acceleration side. Is there a way to think about the mix in terms of the bytes or the revenue or the business just generally in terms of that split?

Yeah, actually a really good question. Historically, we've been very strong on the kind of live events, streaming side of it because it's just more complex. Customers really depend on reliability. They rely on being consistently there, having the network built. And we tend to win where performance matters. And so as a result, we've always historically been strong there just because it's been really good. I would say that the portfolio has really built out, to your point, which is now the delivery has that side, and then we have what we call the full-site delivery. And on the full-site delivery side, those are the e-commerce sites, the hospitality, the different market segments that we sell into. too. I would say that growth and demand continues to be strong in both. I think that on the first side, we continue to still be better than our competitors on reliability, fewer outages. We just consistently show up for our customers there. I would say that with the complexity of the traffic that's happening, we're seeing a lot of demand on full-site delivery. When I say complexity of the traffic, there's just more machine traffic now with bots and like you know ddos attacks getting more complicated um and so you see like full-site delivery customers who really want like a broader suite and being able to protect the traffic that they you know protect them and thinking traffic is the front door to a lot of that um and then i think that more and more with agentic like there's a lot of demand even for compute and so you see that kind of play out with that other side so i'd say like broad-based strength on both sides like of the market yeah so maybe on that point i guess what are you seeing on the impact of agentic on overall traffic at this point how is fastly you know capturing that opportunity so the way i look at agentic and the way even ai traffic is it's it's there's a difference on the traffic side from a gigabytes transferred and the number of requests that come in right and i would say that um you know we published articles that talked about machine traffic being six and a half times as fast as human traffic. And on top of that, and that's measured on a request basis, right? So the number of requests from machine to machine, like it's really high and it's growing faster and it's almost like half of the kind of total request traffic that we see overall. But it's still a very small portion of gigabytes transferred, right? It's hard to compare when you're doing like 4K video or like, you know, live demand video on high definition. Those are just big gigabytes of data that's being transferred. I think that there's a difference between the two. I would say the way AI and agentics are playing out for us, the nearest term beneficiary in the tailwind we see is in the security side. With the proliferation of machine traffic, there's just more customer demand for hey, is that good traffic or bad traffic? How do you block that when it comes out? We see the benefits in DDoS And then we see the benefit in bot management, like monetization models are getting altered and impacted, right? And so our customers are demanding those too. So I think the nearest term impact is security and specifically with bot management and DDoS products. I would say that longer term, the beneficiary tailwind from AI would probably be in the compute side. I just think that the edge has a bigger role to play with AI. Right now, the edge is relatively small for frontier models because they sit all in the central cloud. They don't sit at the edge. But as more agentic, machine-to-machine, agents-to-agents working together, a lot of that should be happening at the edge. And so I do think that, like, over time, you know, AI and agentic will end up having a bigger play at the edge. And then I think that, like, network services, I think that, you know, model is still different depending on the mix between, like, live events and video and how it's priced on a gig basis. And then, you know, if you're doing more full-site delivery and more traffic there and you get more requests, you'll start seeing that in network service, too. But that's probably going to be slower just because, like, the majority of our revenues still are going to be on the gigs transferred. Got it.

Maybe before getting to security and the other business to round up the discussion around delivery, obviously, we've seen a little bit of an exit in the space. You know, Egeo used to be part of this, and Akamai bought a lot of those contracts. I think Fastly, from what we can tell on our CDN tracker, still benefits off of some of the mixed shift between some of those especially larger customers out there. What have you guys done in terms of helping along that mix shift and being able to gain either the wallet share of some of those very large customers that are out there or actually just land net new from those prior install bases?

Yeah, so the Egeo, like, you know, headwinds that happened in 2024, you know, so we've already wrapped it in 2025, which has been great, right? I think that, like, even prior to that being, you know, like, Edgio going out of business, there was a lot of already customer, like, awareness that there was, you know, financial difficulties at the company. And so, you know, I think we had done a lot of, like, takeouts and, like, growing share faster than the market overall, even before Edgio was going out of business. We continue to do that today. Like, nothing's changed from our point of view. I do think that in 2026, we've already lapped all that data. And so we continue to invest in competitive takeouts, and I think we continue to be very successful. And I think the success is, one, we have a better product, and I think that customers realize that and is one to invest in making that change. But I think, two, having the full product suite really helps a lot. Having going from one security product to five full security products helps with the competitive takeouts because I think more and more customers are seeing the intertwining play between CDN and delivery and then on the security side. And so just having that full suite helps us a lot on the takeouts.

Yeah, so I think security has been kind of a surprising piece here for a lot of us on the sell side or on the investor side of things. We get a lot of questions as to why are we seeing such strength at this point. How much of it is that we have the full suite versus kind of better execution versus this renaissance resurgence we're seeing across sort of the application security side of things?

That's actually really tough to piece out just because I think 2024 headwinds that we saw really made us really focus on execution. And I think execution played out in two main areas, right? Execution played out with a new head of sales that started mid-2024. Scott Levitt came on board, and he really changed the execution engine around go-to-market. And he brought basically a selling discipline that didn't completely exist, and then he also brought in security selling expertise that didn't exist. Scott himself came from Akamai, but he also spent time at Imperva. And so he came from a security selling background. He brought in sales leaders who knew how to sell security. like that alone wouldn't be good if we didn't have the full product suite, right? And then while that was going on, Kip was also brought in mid-2024. Kip's now our CEO, but he was chief product officer. And under him, he went from one security product with a web application firewall to like the full suite, the five main products that we have today. And that really opens the doors. And I say that the two of them go hand in hand. Like it's hard to be like, hey, I can fix execution, but if you don't have the product suite, it wouldn't be there. if you have the product suite, but you don't have the execution. So it's hard to say why is security taking off. I would say it's a function of both, and I think both needed to happen when it happened. And I would say that having a better security suite and the full suite combined with that go-to-market execution with Scott really helped transform and get us to where we are today. Our security revenues grew 43% year-on-year the last quarter, and very, very proud of what we've done. And we continue to invest in security because we think that's a growth engine for the company.

So, you know, probably stealing a little bit of thunder from next week maybe. But you guys talk about security, you know, penetration being about, you know, 50% plus have one product or more, right? I think is the disclosure. Roughly.

I guess what prevents, especially now that we have five full products, what prevents us from getting that to two or three? like what's been that sort of friction point and can you just talk through some of the traction with each of those five products I'm sorry to clarify two or three meaning like security products adoption of two or three yeah two or three assuming most of it is WAF I don't think we're saying two or three adoption isn't happening okay to be rhetorical sorry yeah I mean I would say that the way we think I see the products our product suite is very complementary and synergistic for our customers right I think customers are more and more incented to kind of adopt the fuller product suite that we have. And right now, we do have customers who adopt more than two products. We do have customers who adopt more than three products. I think what we see is that customer adoption has picked up over the last two years. As a matter of fact, I mean, I don't want to give away too much, but I think at the investor day, we're going to talk about multi-product adoption a lot more and share some adoption rates. you know, from a, from a multi-product perspective, right? Like I think that the way we currently just, you know, talk about revenues, it just, it's very confining because security shows it as one line that we actually have five security products. And so it doesn't do it justice. And I think that, you know, an investor day next week, we're going to talk about the multi-product adoption and how that's played out over the last two years. And we're going to share some statistics.

Yeah. And specifically within security too, I think it's worth noting bot management has been just a really strong product for us. I mean, We developed it in-house and have really gone against one of our largest competitors. It has a viable solution that's been around for quite a while now. We feel like we're very successful against them. We've also rolled out another feature on top of that called Content Guard, which, as Richard was talking about earlier, is really very useful to help mitigate scraping of websites but also setting up monetization streams around that. We talked a little bit about this on our last call with a publisher that co-innovated with us on that and it turned out to be a very successful product for them, and we're seeing a lot of interest in that product from other companies. So I'm feeling really good about the bot management side as well, which I think you're going to hear more about in the next year or so from Fastly.

I think on the earnings call, we talked about bot management and DDoS growing triple digits on a year-over-year growth basis. Our WAF continues to be our strongest security product, and it continues to grow that business pretty nicely too. So I think overall we're feeling really good about the full product suite. Like, those three products in particular are driving a lot of security growth.

How is the team feeling about, you know, obviously we're up to five security products at this point. How is the team feeling about the potential expansion of that product family, be it across the application security stack, or do we start talking about network?

Yeah, I think for us, I mean, we're definitely focused on the edge. Like, we want to, like, stay on the edge from a security perspective. I would say that, you know, the security product team is constantly looking at, like, other kind of, you know, like, what's next, right? And they want to make the existing five continue to be better, and so there's a lot of investments on making the five better. But then there's also, like, you know, other ideas that they have, you know, obviously don't want to talk about, like, you know, and pre-announce anything. But, like, you know, the team is hard at work. So Kelly Shortridge, who is our chief product officer, ran security product under KIPP when KIPP was chief product officer. So KIPP became promoted into CEO role, and then his replacement was Kelly, who ran security products and is now the chief product officer. Both KIPP and Kelly will be at our investor day next week. And so it's a good opportunity to hear directly from Kelly around the product portfolio that she thinks about and how she's seeing the product evolution.

Makes sense. You guys put up a really good net retention rate here, really, in the first two quarters of the year. Can you just walk us through what are the primary levers or really what's causing the uptick? Is it traffic? Is it just a better pricing environment? Is it cross-sell? Help us on that.

Yeah, I mean, what you're calling out is absolutely right. You know, we produced 117% in our last quarter. I think that's a four-year high for us. So, like, we've done extremely well in getting that up. I think when Scott came in in 2024, one of his big focus areas was how do you really continue to make sure that existing customers are very happy with our product and loving the product? And then I think KIP broadening the portfolio really helped out a lot as well. And so I think if you had to dissect the NRR, it's actually hard to break out is it upsell of existing delivery services product because we see a lot of upsell. I mean, network services is growing 17% year-on-year, right, which it actually happens to match the 117% NRR that we have. But I would say that that alone is not enough to drive that 117. It's really the cross-sell opportunities. And I think that security now is almost like a $44 million quarter revenue business. If you add in our other compute, that's almost like a $50 million quarter business, a $200 million run rate, and just having that like additional product SKUs really helps with the cross-selling. And so I would say it's a combination of the two, like really the customer focus, like Arthur Bergman, who's our founder, is still actively involved in the business. He's actively involved with existing customers. Some of these customers have been with us a long time, and he's like still very involved. And I just think that maniacal focus on customers is kind kind of been what's helpful in driving that 1.17.

Yeah, so speaking of your compute business, Computed Edge is more of a CPU serverless-based architecture. Why is this the right approach to take? You know, I get asked a lot, why doesn't Fastly get into the sort of GPU inferencing game? Help us on that.

Yeah, I mean, we do get asked the same question quite a lot. Two major things to point out here. One of our peers, our competitors, has been approached by some LLMs to build out a large scalable capacity with their sort of central compute approach. We see that as a scenario that we wouldn't find a lot of value prop in what we do at Fastly. We believe our intellectual property is centered around the software that we run on this unified, scalable network. And it's basically built pretty much with off-the-shelf hardware, for lack of better words. But it's completely software programmable. And it can accommodate many other needs for our customers. One thing we see happening is the way it's positioned is around a multi-cloud approach with open models around any sort of adventure a customer wants to take. We have the sandbox, if you will, that can cater to all these different possibilities. One of the issues when you go the route that Jim was describing is you're basically building sort of a capacity slug for a specific purpose-built customer application. Sometimes you give up that opportunity to be positioned in this unique spot that we're at the edge, to be multi-cloud, be more open model, and you are very limited with how that scales. For us, we see the value prop around that software as being that, and we will see probably over time more customers turn to us to run their workloads around agentic or orchestration layers because we have that unique positioning. The other side of that, too, is I think from basically just a financial perspective, it's very costly. The return on invested capital remains to be seen. We would obviously probably look at opportunities like that. But for the time being right now, we don't see there being a good return on the investment versus also just the value prop we bring with our technology stack.

So how has Fastly then packaging Computed Edge at this point for AI developers? and what is the margin profile of this business relative to the rest?

Yeah, I mean, I think from that perspective, too, and it should be elaborated more on the last point there, is we have a lot of toolkits around how to develop on our compute layer. We also, as I said, adhere to more open standards, MCP server, things like real simple licensing. These are technologies or standards, if you will, that are incorporated already in our stack, and we're open to that. Our competitors tend to take some more proprietary flavors around some of these things, but that's a way to entice developers to come to our platform is that we continue to be sort of cloud-neutral, model-neutral, and open for this, you know, development opportunity. That's the ethos that we're sort of built on and we continue to thrive forward with.

And then the second part of your question was around, like, the margin profile on compute. I would say that, you know, because we're leveraging the same existing network, the same existing infrastructure, we have the ability to be able to use excess-stranded CPU capacity, right? So when you're selling delivery services, our delivery services was historically more, like, IO-bound. And, you know, when we work with our customers and we're selling compute, and those compute resources end up using CPUs, the CPUs are basically there sitting idle, and we're able to, like, really leverage and more effectively use the assets that we have. And so as a result, what you see is, like, in the last 12-month basis, like, our gross margin flow-through was 96%, meaning for every incremental dollar of revenue that we generated in the last 12 months, 96% of it went back to gross profit. And so you can kind of see the interplay of, like, as we kind of diversify and broaden our security portfolio and we're broadening our compute portfolio without having to do, like, incremental, like, build a whole new network. We're using the same exact network. that gross margin ends up like just accruing the benefits of using stranded capacity that was there.

Got it. We're just under five minutes left. Any questions from the audience? Otherwise, I've got plenty to bug Vern and Rich about. No? Well, I know Vern's really excited for GTA 6 coming out. And so I guess how are you guys thinking about this upcoming release? What is Fastly's exposure to gaming, and how do you guys view the online gaming opportunity even just longer term?

Yeah. It's actually interesting because if you watch, I can hear what investors or even analysts are saying about GTA. It's supposed to be record-breaking downloads. And we do partner with customers on the gaming side. Gaming downloads is a portion of our revenues. We had a really big Q4 beat last year, and that big Q4 beat, we had attributed some of it to record gaming downloads that we had saw in Q4 of last year. What we do when we enter a quarter, when we guided our full year at the last earnings piece, we knew some was episodic, some was durable. We kind of factored in the durable beats, and we raised the guidance for Q3 and Q4. And then what we do is we layer in some of the episodic events that we think will happen in the second half of the year. And so the unknown episodic events are going to be the GTA 6 launch. And then I think the other big unknown that could be, like, very different is going to be the midterm elections. Like, you know, elections happen every two years, roughly, and the midterm elections are not as big as the presidential elections, but I think there's a lot of interest that tends to happen. You know, a lot of the big news providers end up using our delivery services business because we have, like, instant purge. We have capabilities that our competitors don't have where, like, they need high configurability. They need high, like, control over, like, articles that get refreshed. Like, you know, we have this ability where, like, our customers can just push a button and be like, like, purge everything that's out there and replace it with this updated article. And then, like, all the users end up seeing the same article. And so, like, these big, you know, midterm elections end up helping us out a lot. For those two bigger unknowns, we look at historical norms and kind of factor in what we think that traffic pattern will be like. And we remain prudent, right? You're never going to want to build a revenue forecast that's at the peak that everyone's expecting it to be. And so when we guide, we guide close to the pin with some upside potential. We wouldn't want to factor all that in. The other two episodic events happen every year, which is going to be holiday shopping and NFL, right? And so those are two other kind of episodic events that tend to happen in Q4 timeframe. And so we factor those in. And those are a little bit more known to us because those two happen every single year. I think the two kind of bigger question marks are going to be GTA plus midterm elections.

Yeah, well, I tell Vern every year he can join the Bills Mafia. It's okay, as opposed to being a Browns fan. Just with a minute to go, obviously, Analyst Day next week. And any kind of thoughts around or puts and takes around fiscal 27? I know you're not going to guide here necessarily, but and also how we should think about infrastructure spending going forward, given what's going on in the environment.

So investor day is going to be next Tuesday in New York city, NASDAQ market site. I encourage you guys all to go because you're going to get to see, see Arthur Bergman, who's our CTO and founder, you know, Kelly Shortridge, who's our chief product officer. You'll hear from Scott about the transformation that he's done and where he's focusing his attention. I think it's exciting. We won't do guidance on 2027, but I think what we will do is give some more visibility in terms of a longer-term model that we think would be appropriate. I think it's going to be a good opportunity to get in front of investors and talk about where we see the next three years kind of playing out and what kind of flow-throughs that we expect. And I think I also talked about the idea of multi-product adoption. I think that's pretty exciting for me to talk about as well. So I encourage you all to go if you have time. New York NASDAQ market site.

Perfect. Well, that's a perfect spot to end it. Thank you guys for joining us and look forward to hearing from you guys next week.