Shares of Fastly plunged 10% to $23.42 on Thursday, erasing a week's worth of gains, after investors decided a blowout quarter wasn't enough to justify the stock's recent rally. The edge cloud company posted adjusted earnings of $0.15 per share — more than double the $0.07 Wall Street expected — on revenue of $183.3 million, beating the $173.9 million consensus and representing 23% year-over-year growth. The sell-the-news reaction underscores a market increasingly skeptical that fast-growing but still unprofitable companies deserve premium prices.
• The Numbers Were Genuinely Strong, Which Makes the Drop Telling. Fastly raised its full-year revenue outlook to $732–$746 million, well above the $718.6 million consensus, while bumping adjusted earnings guidance to $0.50–$0.54, far ahead of the $0.33 Street estimate.
Adjusted gross margin hit a record 65.8%, up from 59% a year ago. Yet the stock had already run from $21.55 on July 30 to $26.03 by the close before earnings — a 21% advance that priced in good news.
• Security Is the Growth Engine, but It's Still Small. Security revenue surged 43% to $41.7 million , making it the fastest-growing segment. That growth is driven by the company's web firewall product gaining market share, with newer tools for blocking cyberattacks and malicious bots adding momentum. However, security still accounts for roughly 23% of total sales — not yet enough to reshape the overall growth profile if the larger content-delivery business slows.
• Customer Concentration Crept Higher, Raising a Red Flag. Fastly's top ten customers represented 37% of revenue in Q2, up from 31% a year ago. That six-point jump means growth is increasingly dependent on a handful of large accounts — a vulnerability if any single client reduces spending or renegotiates terms.
• Cash Generation Went Backward. Free cash flow — actual cash left after running the business and buying equipment — fell to just $3.6 million, a 1.9% margin, down more than five percentage points from the year-ago quarter.
Capital spending is front-loaded this year, with infrastructure investment expected at 10–12% of revenue versus 5% in 2025. Until that spending translates into sustained cash profits, investors have reason to question whether the earnings improvement is durable or just an accounting artifact.
The bottom line: Fastly delivered its best quarter in years, but the market is demanding proof that record margins and surging security sales can coexist with real cash generation and a broader customer base.