Industry Overview - The artificial intelligence (AI) investment trend in the United States remains strong, with significant capital expenditure planned for AI infrastructure development, amounting to $325 billion by 2025, reflecting a 46% year-over-year increase in spending on the AI ecosystem [1][2] Company Insights Innodata Inc. (INOD) - Innodata is positioned as a key player in the AI sector by providing essential data for training advanced language models, with a long-term growth outlook supported by increasing demand for data services [6][10] - The company has launched a Generative AI Test & Evaluation Platform, enhancing its AI service offerings, and is expected to benefit from the growing need for data engineering in large language model development [8][9] - Innodata's expected revenue growth rate is 40.3%, while earnings are projected to decline by 19.1% for the current year [11] Fastly Inc. (FSLY) - Fastly offers infrastructure software for cloud computing and has introduced the Fastly AI Accelerator, which optimizes generative AI applications for developers [12][13] - The company operates an edge cloud platform that enhances application performance, requiring minimal code changes for developers [13] - Fastly's expected revenue growth rate is 8.7%, with earnings growth projected at 16.7% for 2025, and earnings estimates have improved by 10% over the last 30 days [14] AeroVironment Inc. (AVAV) - AeroVironment specializes in robotic systems and services for government and commercial clients, integrating AI and computer vision into its products [15][16] - The company provides a range of unmanned systems and related services, primarily to the U.S. Department of Defense and allied governments [16][17] - AeroVironment's expected revenue growth rate is 26.1%, with earnings growth projected at 33.6% for the current year [18]

Core Insights - Cerby has announced a $40 million Series B funding round led by DTCP, with participation from existing investors including Okta Ventures, Salesforce Ventures, and Two Sigma Ventures [1][9] - The company aims to expand its identity security automation platform in response to increasing demand for solutions that secure disconnected applications [4][5] Company Overview - Cerby is the first platform to automate the full identity lifecycle for disconnected applications, covering aspects from credentials and authentication to lifecycle management and privileged access [3] - The platform integrates with existing Enterprise Password Management (EPM), Identity and Access Management (IAM), Identity Governance and Administration (IGA), and Privileged Access Management (PAM) systems, providing centralized access controls and automating manual security tasks [8] Market Demand - The proliferation of SaaS, cloud, mobile, and on-premise applications has significantly expanded the enterprise attack surface, increasing the need for scalable and advanced identity security solutions [2] - Cerby is focusing on growth in key markets such as Germany, France, the UK, and strategic regions in the Middle East, where regulatory pressures and enterprise complexity are driving demand for its solutions [5] Growth Metrics - Since its Series A funding round less than 20 months ago, Cerby has increased its Annual Recurring Revenue (ARR) by 10 times and expanded its customer base by 5 times, now automating identity workflows across more than 2,000 applications and supporting over 100 organizations globally [6]

Market Overview - The AI-driven bull run of 2023 and 2024 faced significant challenges in 2025 due to overstretched valuations, stock inflation, weak economic data, geopolitical conflicts, and concerns over the Trump administration's trade policies, impacting confidence in equities [1] - The technology sector, particularly AI-focused stocks, has been the most affected, but current low valuations present investment opportunities [2] Recommended AI Stocks - Five Internet-based AI stocks with favorable Zacks Rank recommended for purchase on the dip include Arista Networks Inc. (ANET), Fastly Inc. (FSLY), Five9 Inc. (FIVN), HubSpot Inc. (HUBS), and Twilio Inc. (TWLO), all carrying a Zacks Rank 2 (Buy) [3] Arista Networks Inc. (ANET) - Arista Networks is positioned well with a robust network architecture for cloud and AI networking, focusing on proactive products, zero-touch automation, and predictive operations [6] - The company’s AI suite enhances job monitoring and performance issue resolution, with expected revenue and earnings growth rates of 18.7% and 12.8% for the current year, respectively [8] - ANET is currently trading at a 31.6% discount from its 52-week high price [8] Fastly Inc. (FSLY) - Fastly provides cloud computing infrastructure and recently launched Fastly AI Accelerator, optimizing generative AI applications [10][11] - The company has expected revenue and earnings growth rates of 8.7% and 16.7% for 2025, respectively, and is trading at a 40.5% discount from its 52-week high price [12] Five9 Inc. (FIVN) - Five9 offers intelligent cloud software for contact centers, benefiting from the growing adoption of AI tools [13][15] - The expected revenue and earnings growth rates for the current year are 9.6% and 11.7%, respectively, with a 47.6% discount from its 52-week high price [16] HubSpot Inc. (HUBS) - HubSpot provides a cloud-based CRM platform and is experiencing steady adoption from enterprise customers, driven by its AI features [17][18] - The expected revenue and earnings growth rates for the current year are 15.4% and 14.9%, respectively, with a 30.2% discount from its 52-week high price [19] Twilio Inc. (TWLO) - Twilio focuses on generative AI offerings and has launched Customer AI technology to enhance customer engagement [20][21] - The expected revenue and earnings growth rates for the current year are 7.8% and 22.6%, respectively, with a 25.3% discount from its 52-week high price [24]

Group 1 - The current market environment is characterized by high volatility, creating a strong incentive for investors to actively manage their portfolios [1] - To outperform the stock markets, investors should consider overlooked stocks, especially in the small and mid-cap sectors [1] Group 2 - Gary Alexander has extensive experience in covering technology companies and advising startups, contributing to his insights on industry trends [2] - He has been a contributor to Seeking Alpha since 2017 and his work is featured in popular trading apps like Robinhood [2]

Core Insights - Fastly reported revenue of $144.47 million for Q1 2025, marking an 8.2% year-over-year increase and a 4.47% surprise over the Zacks Consensus Estimate of $138.29 million [1] - The company posted an EPS of -$0.05, consistent with the previous year, and exceeded the consensus EPS estimate of -$0.06 by 16.67% [1] Financial Performance - Fastly's shares have returned +16.6% over the past month, outperforming the Zacks S&P 500 composite's +10.6% change [3] - The company currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3] Customer Metrics - Fastly's enterprise customer count stands at 595, slightly below the average estimate of 600 from two analysts [4] - The total customer count is 3,072, which is lower than the estimated 3,140 by two analysts [4] - The last 12-month net retention rate (LTM NRR) is 100%, compared to the average estimate of 101.2% from two analysts [4]

Fastly (FSLY) Q1 2025 Earnings Call May 07, 2025 04:30 PM ET Company Participants Vernon Essi - VP of IRTodd Nightingale - CEO and DirectorRon Kisling - CFOParam Singh - Executive DirectorSanjit Singh - Executive DirectorRishi Jaluria - Managing DirectorRobert Palmisano - Senior Equity Research Associate Conference Call Participants Jonathan Ho - Research AnalystJames Fish - MD & Senior Research AnalystMadeline Brooks - AnalystRudy Kessinger - Managing Director - Senior Equity Research Analyst Operator Good ...

Financial Data and Key Metrics Changes - Q1 2025 revenue was $144.5 million, exceeding guidance of $136 million to $140 million, representing an 8% year-over-year growth compared to 2% in Q4 2024 [6][7][24] - Gross margin for Q1 2025 was 57.3%, slightly above projections but down from 59.6% in Q1 2024 [10][27] - Operating loss was $5.8 million, better than the guidance range of $11 million to $7 million [11][28] - Positive free cash flow of $8 million was generated, marking the first positive cash flow in eight quarters [12][30] Business Line Data and Key Metrics Changes - Network services revenue was $113.2 million, growing 7% year-over-year [24] - Security revenue was $26.4 million, also growing 7% year-over-year [24] - Revenue from other products, primarily compute, grew 64% year-over-year, contributing $4.8 million [20][24] Market Data and Key Metrics Changes - Revenue outside the top 10 customers grew 17% year-over-year, indicating revenue diversification [10][24] - The top 10 customers represented 33% of revenue, down from 38% in Q1 2024 [9][10] - The trailing twelve-month net retention rate was 100%, down from 102% in the prior quarter [26] Company Strategy and Development Direction - The company is focusing on a go-to-market transformation, enhancing customer acquisition and cross-selling efforts [7][12] - Emphasis on diversifying revenue sources and reducing reliance on top customers is evident, with a strategy to grow enterprise customer mix [10][12] - The security portfolio has been expanded, with three core offerings now available, aiming for increased penetration in existing customer accounts [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of 2025, expecting to achieve operating profit [21][37] - Despite macro uncertainties, no significant changes in buyer behavior or demand patterns have been observed [21][49] - The company raised its 2025 revenue guidance to $585 million to $595 million, reflecting a 9% annual growth at the midpoint [36] Other Important Information - The company is attending several conferences in Q2 2025 to enhance visibility and investor relations [5] - The impact of TikTok's U.S. operations on revenue has been cautiously managed, with guidance excluding potential revenue from TikTok after June 19 [33][34] Q&A Session Summary Question: What is driving incremental customer demand in network services? - Management noted strong customer acquisition in strategic verticals and enhanced sales execution under new leadership [39][40] Question: What percentage of customers are using WAF, and what is the adoption rate for DDoS and bot mitigation? - Approximately half of customers use multiple product lines, with WAF adoption being lower, indicating significant growth potential [43][44] Question: What drove the 64% growth in compute and observability? - The growth was primarily driven by demand for dynamic user experiences and innovative storage solutions [46][47] Question: What is the outlook for pricing stability in the market? - Management indicated a return to a more favorable pricing environment, expecting stabilization in pricing dynamics [64][65] Question: What are the drivers behind the sequential increase in RPO? - Strategic renewals, sales incentives, and the success of the packaging strategy contributed to the record RPO growth [52][53] Question: How is the company addressing potential geopolitical risks with TikTok? - Management expressed optimism about maintaining a strong relationship with TikTok and leveraging opportunities across the portfolio [60][61] Question: What is the expected EBITDA outlook for the year? - Management expects to see positive EBITDA for the year, particularly in the second half [78] Question: Why is security growth currently slow? - Management believes there is significant potential for growth in the security segment, particularly with new product offerings [82][83]

Financial Performance - For the three months ended March 31, 2025, revenue was $144.5 million, an increase of 8% from $133.5 million in the same period of 2024[154]. - The company incurred a net loss of $39.1 million for the three months ended March 31, 2025, compared to a net loss of $43.4 million in the same period of 2024[154]. - Total revenue for the three months ended March 31, 2025, was $144.5 million, an increase of 8% from $133.5 million in the same period of 2024[200]. - Gross profit for the three months ended March 31, 2025, was $76.8 million, with a gross margin of 53%, down from 55% in the same period of 2024[197][199]. - The net loss attributable to common stockholders for the three months ended March 31, 2025, was $39.1 million, compared to a net loss of $43.4 million in 2024[197]. - Interest income fell to $3.0 million, a decrease of 23% from $3.8 million in Q1 2024, attributed to lower interest rates and investment balances[211]. - Interest expense surged to $3.2 million, an increase of 448% from $0.6 million in Q1 2024, primarily due to the coupon interest of the 2028 Notes issued in December 2024[212]. - As of March 31, 2025, the company had cash and cash equivalents totaling $307.3 million, indicating a strong liquidity position[215]. - Net cash provided by operating activities was $17.3 million for the three months ended March 31, 2025, compared to $11.1 million in Q1 2024[225]. Customer Metrics - The top 10 customers contributed 32% of total revenue for the trailing 12 months ended March 31, 2025, down from 38% in 2024[154]. - The total customer count decreased to 3,035 as of March 31, 2025, down from 3,290 in 2024, indicating a decline in customer adoption[175][177]. - The enterprise customer count increased to 595, contributing 93% of total annualized current quarter revenue, up from 577 customers contributing 91% in the previous year[178]. - The Last-Twelve Months Net Retention Rate (LTM NRR) was 100.0% for the trailing twelve months ended March 31, 2025, down from 114.0% in 2024, reflecting challenges in customer retention[179][180]. Revenue Breakdown - Network Services revenue was $113.3 million, a 7% increase from $106.0 million in the same period of 2024, driven by growth in usage from existing customers[200][202]. - Security revenue also increased by 7% to $26.4 million, compared to $24.6 million in the prior year[200]. - U.S. revenue reached $110.5 million, accounting for 77% of total revenue, a 12% increase from $98.5 million in Q1 2024, while international revenue decreased by 3% to $33.9 million[204]. Expenses and Investments - Research and development expenses as a percentage of revenue were 26% for the three months ended March 31, 2025, compared to 29% in the same period of 2024[171]. - Research and development expenses were $37.4 million, accounting for 26% of revenue, a decrease from 29% in the previous year[197][199]. - Cost of revenue rose to $67.7 million, an increase of $7.4 million or 12% compared to $60.3 million in Q1 2024, primarily due to higher bandwidth costs[205]. - Total operating expenses decreased by 4% to $114.98 million from $119.49 million in Q1 2024, with general and administrative expenses down 11%[207]. - The company expects to continue incurring operating losses in the foreseeable future due to ongoing investments and strategic initiatives[217]. Strategic Initiatives - The company plans to continue investing in its platform and network infrastructure to support revenue growth and customer needs[171]. - The company aims to expand its customer base across diverse industry verticals by enhancing product experience and leveraging its partner ecosystem[157]. - The company is focused on increasing its sales and marketing efforts globally, particularly targeting enterprise customers[168]. - The company intends to expand its international presence, which may increase complexity and costs[166]. - The company has acquired Glitch to enhance its product offerings and support developer project management[171]. Risk Factors - The company is closely monitoring geopolitical events that could impact its business, particularly concerning customers operating in regions affected by conflict[167]. - The company does not currently engage in hedging activities to reduce exposure to currency fluctuations, although it may consider this in the future[242]. - The company identified certain triggering events for goodwill impairment, including a decrease in stock price and market capitalization, but concluded that fair value exceeds carrying amount[237]. - A hypothetical 10% change in interest rates or foreign exchange rates would not have had a material impact on the company's financial statements[241][242].

Financial Performance - Total revenue for Q1 2025 was $144.5 million, representing an 8% year-over-year growth[9]. - Q2 2023 revenue was $122.831 million, increasing to $144.474 million by Q1 2025, representing a growth of approximately 17.6%[36]. - Gross profit for Q2 2023 was $70.366 million, with a projected increase to $82.853 million by Q1 2025, indicating a growth of about 17.8%[36]. - Gross profit for Q3 2023 was $66.086 million, with an expected increase to $76.798 million by Q1 2025, indicating a growth of about 16.2%[32]. - The company reported a net loss of $(3.779) million in Q2 2023, with a projected loss of $(6.597) million by Q1 2025, indicating a worsening financial position[36]. - Net loss for Q3 2023 was $54.311 million, with a projected decrease to $39.148 million by Q1 2025, indicating an improvement of about 28%[32]. - The company reported a net loss of $54,311 thousand in Q3 2023, an increase from a net loss of $10,704 thousand in Q2 2023[40]. - Non-GAAP operating loss for Q2 2025 is projected to be between $8.0 million and $4.0 million, with a non-GAAP net loss per share between $0.08 and $0.04[5]. Customer Metrics - The enterprise customer count increased to 595, up 18 from Q1 2024, while total customer count decreased to 3,035, down 255 from Q1 2024[9]. - Fastly's top ten customers accounted for 33% of revenue in Q1 2025, down from 38% in Q1 2024[9]. - Last 12-month net retention rate (LTM NRR) decreased to 100% in Q1 2025 from 102% in Q4 2024[9]. Cash Flow and Expenses - The company generated $8.2 million of positive free cash flow in Q1 2025, compared to $2.2 million of negative free cash flow in Q1 2024[9]. - Free cash flow for Q3 2023 was negative at $(19,694) thousand, a decline from $7,753 thousand in Q2 2023[41]. - Total operating expenses in Q2 2023 were $77.311 million, projected to rise to $88.698 million by Q1 2025, an increase of about 14.7%[36]. - Total operating expenses in Q3 2023 were $124.428 million, with a forecasted decrease to $114.977 million by Q1 2025, reflecting a reduction of approximately 7.5%[32]. Research and Development - Research and development expenses in Q3 2023 were $39.068 million, expected to decrease to $37.429 million by Q1 2025, a reduction of approximately 4.2%[32]. - Research and development expenses were $25.216 million in Q2 2023, expected to increase to $28.536 million by Q1 2025, a growth of approximately 13.0%[36]. - Research and development expenses for Q3 2023 were $39,068 thousand, with non-GAAP R&D expenses at $26,236 thousand, highlighting a focus on innovation[33]. Financial Health and Liabilities - Long-term debt decreased from $472,823 thousand in Q3 2023 to $149,874 thousand in Q1 2025, a reduction of about 68.3%[39]. - Total liabilities decreased from $672,091 thousand in Q3 2023 to $492,222 thousand in Q1 2025, reflecting a decrease of approximately 26.7%[39]. - Total current assets decreased from $551,458 thousand in Q3 2023 to $440,195 thousand in Q1 2025, representing a decline of approximately 20.2%[39]. - Total stockholders' equity decreased from $968,572 thousand in Q3 2023 to $957,023 thousand in Q1 2025, a slight decrease of approximately 1.6%[39]. - Accumulated deficit increased from $811,366 thousand in Q3 2023 to $1,031,958 thousand in Q1 2025, indicating a worsening of about 27.1%[39]. Product Development and Recognition - Fastly released several new products, including Fastly Client-Side Protection and Fastly HTTP Cache API, enhancing its service offerings[8]. - Fastly's Next-Gen WAF was recognized as a Strong Performer in The Forrester Wave™: Web Application Firewall Solutions, Q1 2025[9]. - Product package deals in Q1 2025 more than doubled year-over-year, with new logo packages growing over 80% year-over-year[8]. Future Outlook - Future outlook includes continued focus on market expansion and product development, with an emphasis on maintaining cost efficiency and improving margins[33]. - Management emphasizes that non-GAAP financial measures provide a clearer view of the company's core business performance and facilitate comparisons with peers[30]. - The company plans to exclude amortization of capitalized stock-based compensation from non-GAAP financial measures starting Q1 2025, enhancing the clarity of financial performance[34].

Core Viewpoint - Fastly is experiencing significant challenges with revenue growth and customer retention, which raises concerns about its long-term stability, despite potential opportunities in the AI market through new product innovations [12]. Group 1: Stock Performance - Fastly's shares have declined 27.4% year to date, underperforming the broader Zacks Computer & Technology sector's decline of 8% and the Zacks Internet - Software industry's fall of 2.8% [1]. - In comparison, Digital Turbine's shares have surged 98.3%, while Inseego and Atlassian have seen declines of 5.4% and 10.2%, respectively [1]. Group 2: Revenue and Earnings - Fastly reported fourth-quarter 2024 revenues of $140.6 million, reflecting a 2% year-over-year growth, primarily due to stagnant network services revenues [2]. - For the first quarter of 2025, Fastly expects revenues between $136 million and $140 million, indicating a 3% year-over-year growth at the mid-point [5]. - The company anticipates revenues of $575 million to $585 million for 2025, suggesting a 7% year-over-year growth at the mid-point [6]. Group 3: Customer Retention Challenges - Fastly is facing significant customer retention challenges, with a net retention rate falling to 102% in the fourth quarter from 105% the previous quarter and 113% a year ago [4]. - The company lost 182 customers year over year and 577 in the last quarter, indicating ongoing retention issues and potential weaknesses in customer growth [4]. Group 4: Product Innovations - Fastly's fourth-quarter 2024 results highlight significant product innovations, including the AI Accelerator and advanced security solutions, which may enhance its competitive edge in edge computing [8]. - The AI Accelerator addresses performance and cost challenges in LLM and generative AI applications, supporting OpenAI's ChatGPT and Google Gemini, thereby creating revenue opportunities in the growing AI market [9]. - Fastly's new DDoS Protection service enhances its security portfolio by providing automated threat defense, which may drive customer adoption and retention [10]. - The introduction of Object Storage, an S3-compatible solution with zero egress fees, aims to reduce origin costs and enhance performance for data-intensive users, positioning Fastly for accelerated revenue growth [11].