These are my notes. Many are in my own words. I tried to keep opinions to a minimum.Shareholder Letter: http://d18rn0p25nwr6d.cloudfront.net/CIK-0001517413%20/48325...- Revenue $71 million, up 42% YoY- Dollar-Based Net Expansion Rate (DBNER) of 147% (!!!!!), up from 137% in Q2 20201-- Net Retention Rate (NRR) of 122%, compared to 138% in Q2 20202, and 141% on a last-twelve-month (LTM) basis <- "We believe the LTM Net Retention Rate is supplemental as it removes some of the volatility that is inherent in a usage-based business model. NRR measures the net change in monthly revenue from existing customers in the last month of the period compared to the last month of the same period one year prior." I'm not clear on how much of this is attributed to TikTok nor am I convinced that smoothing the numbers to look better is the right way to view this drop. - non-GAAP gross margin 59.8%, up 56.1% YoY. - R&D 26% up from 24% and $18M up from $12M- S&M 32% DOWN from 35% but $23M UP from $18M. Spending more but not scaling the same pace as revenue.- G&A 34% up from 21% or $24M up from $11M. That is a big increase.- non-GAAP loss of $4M vs $8M while GAAP loss was $24M up from $12M (This level of finance is not my strong suit)- They added 9 enterprise customers. Here are my updated tables that show total customer and average spend are not accelerating. Yes there are some one-time events here, and they say some things pushed in to next quarter, but even ignoring some of last quarter as a rare spike, it would be a stretch to view this as acceleration.TOTAL CUSTOMERSQuarter: Q3'20 Q2'20 Q1'20 Q4'19 Q3'19Total: 2,047 1,951 1,837 1,743 1,684Change: 96 114 94 59 57Growth: 4.9% 6.2% 5.4% 3.5% 3.5% AVERAGE SPEND Quarter: Q3'20 Q2'20 Q1'20 Q4'19 Q3'19Total: $753k $716k $642k $607k $575kChange: 37k 74k 35k 32k 19kGrowth: 5.2% 11.5% 5.8% 5.6% 3.4%- "Compute@Edge has moved out of beta into limited availability, with customers now running production traffic on the environment...creating new and innovative applications ranging from waiting room tokens, dynamic personalization, authentication at the edge, full serverless applications, and more. ... Feedback from customers, including Vox Media, HashiCorp, and loveholidays, is that Fastly’s deep investments in Compute@Edge are delivering on the promise of serverless with rock-solid performance and features"- acquisition of Signal Sciences complete but integration still underway - called Secure@Edge- ...in Q3, we did not meet our original third-quarter forecast due to two distinct challenges that impacted our revenue from a few key customers: -- TikTok (10.8% of revenue) has mostly migrating away by the end of the month "in response to the potential of a prohibition of U.S. companies being able to work with this customer."-- "Existing customer timing: In the latter part of Q3, our forecast for the timing of new traffic coming onto our network from a few existing customers did not meet our expectations. A majority of these timing issues have been resolved..."-- "Aside from these few customers, the business performed as we had forecasted. In addition to these two factors, our Q4 guidance now includes the revenue contribution from Signal Sciences. - "Ecommerce - ...in ecommerce, one of the largest sportswear and footwear retailers in the U.S. migrated to Fastly during the third-quarter, , leveraging our security portfolio to enhance ecommerce security for its customers, as well as our Image Optimization. They're also utilizing the ability to build complex application logic at the edge using VCL and deploy in real-time..."- "Media - ...continuing to win new business in Europe. Our media delivery continues to differentiate by providing consistent, exceptional performance at large scale."- Google Cloud Marketplace mentioned but nothing quantified.- "...several significant customer wins, including a global leader in telecommunications, media and entertainment; a leading EdTech software and solutions company widely used by higher education, K-12, business, and government clients around the world; and one of the largest American multinational retail companies."GuidanceREDUCED! FY2020 dropped to $288-$292 from $290-$300 and they will be losing more per share ~(0.91) now compared to ~(0.04).Reading between the LinesLook, there may be nothing between the lines to read here. 42% revenue ain't bad. BUT having gone through this letter it feels to me that they are trying really hard to paint a rosy picture. Adding extra numbers to make other numbers look better or less important. That DBNER number is insane. I don't understand how they can put up a number like that and not win more customers at the same time. The general language felt stretched to me. I will listen to the call, but...I'm going to be selling all of my shares for now. I just don't like the amount of spin I'm feeling coming off this letter. It is hard to quantify this feeling. I'm curious if anyone else agrees with me about an under-tone that makes me picture a forced-smile that doesn't include the eyes.I love what this company is doing. I think their tech, culture and mission are all special. At the same time I'm not all that confidant in the business-side after this one.
TOTAL CUSTOMERSQuarter: Q3'20 Q2'20 Q1'20 Q4'19 Q3'19Total: 2,047 1,951 1,837 1,743 1,684Change: 96 114 94 59 57Growth: 4.9% 6.2% 5.4% 3.5% 3.5% AVERAGE SPEND Quarter: Q3'20 Q2'20 Q1'20 Q4'19 Q3'19Total: $753k $716k $642k $607k $575kChange: 37k 74k 35k 32k 19kGrowth: 5.2% 11.5% 5.8% 5.6% 3.4%
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