Financial Data and Key Metrics Changes - The company reported record revenue of $173 million in Q4 2025, representing a 23% year-over-year growth, the highest in over three years, and exceeding guidance [7][17] - Gross margins reached a record high of 64%, up from 57.5% in Q4 2024, driven by higher revenue and a balanced traffic mix [22][23] - Operating income was $21.2 million in Q4, with a net profit of $20.1 million, compared to a net loss of $2.4 million in Q4 2024 [24][26] - Free cash flow for Q4 was positive $8.6 million, a significant improvement from negative $7.9 million in Q4 2024 [26][27] Business Line Data and Key Metrics Changes - Network services revenue grew 19% year-over-year to $130.8 million, driven by strong traffic levels and upsell success [18][19] - Security revenue accelerated to 32% year-over-year growth, reaching $35.4 million, comprising 21% of total revenue [18][19] - Other products revenue increased by 78% year-over-year, primarily due to sales of compute products [18] Market Data and Key Metrics Changes - The company’s top 10 customers represented 34% of revenue, an increase from 32% in the prior quarter, while revenue from customers outside the top 10 grew 20% year-over-year [19] - The trailing 12-month net retention rate improved to 110%, up from 106% in the prior quarter [20] Company Strategy and Development Direction - The company is focused on accelerating growth and driving profitability through disciplined execution and a comprehensive suite of security products [6][9] - Investment in security and resilience is a priority, with new product launches enhancing customer engagement and driving multi-product adoption [10][11] - The company aims to capitalize on the increasing demand for AI-related services, positioning itself as a leader in edge intelligence [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, projecting Q1 2026 revenue growth of 18% and full-year 2026 revenue of $700 million to $720 million, reflecting 14% growth [15][34] - The company acknowledged potential macroeconomic and geopolitical uncertainties but remains optimistic about its market position and growth trajectory [51][34] Other Important Information - The company ended Q4 with record remaining performance obligations (RPO) of $353.8 million, growing 55% year-over-year [21] - Cash capital expenditures were approximately 8% of revenue in Q4, below the expected range due to timing of expenditures [28][30] Q&A Session Summary Question: Insights on AI traffic and its impact - Management noted an increase in traffic related to AI, with more requests processed through the Fastly network, indicating a positive trend for the business [37][39] Question: Factors driving performance gap between Fastly and peers - Management highlighted a focus on resiliency and performance improvements as key factors attracting more traffic [40] Question: Confidence in revenue guidance - Management attributed confidence to established customer relationships, RPO growth, and overall market trends [50][52] Question: Coupling of network services and security growth - Management acknowledged some coupling between network services and security demand but emphasized the independent growth of the security portfolio [80] Question: CapEx increase due to component costs - Management indicated that the increase in CapEx is driven by both growth needs and rising component prices, particularly in memory [63]

Summary of Fastly's Earnings Call Company Overview - **Company**: Fastly - **Industry**: Software, specifically focusing on Content Delivery Network (CDN) and security solutions Key Points Business Evolution - Fastly has evolved significantly since its IPO in 2018, transitioning from a CDN-focused company to a platform strategy that integrates security and compute services [2][3] - The acquisition of Signal Sciences has diversified Fastly's offerings, enhancing its security portfolio [2] Security Portfolio Growth - Security now accounts for over 20% of Fastly's revenue, growing at 30% year-over-year [4] - The security portfolio has expanded beyond the web application firewall (WAF) to include bot mitigation, DDoS protection, and API discovery [5][6] - Fastly's security growth is attributed to a more complete product offering and effective cross-selling strategies [7][10] Market Position and Growth Expectations - Fastly anticipates growing faster than the overall security market, which is projected to grow at 13-14% annually [10] - The company reported $34 million in security revenues for the quarter, with a $5 million sequential increase [9] Go-to-Market Strategy - Fastly has strengthened its go-to-market approach by hiring industry experts, enhancing its ability to sell security products [9] - The company is focusing on high-touch relationships with large customers to mitigate revenue concentration risks [14] AI and Edge Computing - Fastly is positioning itself as an enabler for AI applications, with products like the AI accelerator and Compute@Edge [17][19] - The company is exploring opportunities in AI edge inferencing and has seen interest from customers for high-performance storage solutions [19][20] Capital Expenditures (CapEx) - Fastly's CapEx is projected to be around 10-11% of revenues, with a focus on infrastructure investments to support growth [24][25] - The company aims to provide clearer guidance on infrastructure CapEx as a percentage of total revenues [25] Gross Margins - Fastly reported gross margins of 62.8% in Q3, driven by network optimization and a shift towards more SaaS-like offerings [27][28] - The company expects improvements in gross margins as the product mix evolves [29] International Expansion - Fastly is expanding its go-to-market efforts internationally, particularly in the Asia-Pacific region, to capture more opportunities [30][31] Net Retention Rate (NRR) - Fastly's NRR improved to 106%, driven by better customer focus and upsell opportunities [33][34] Network Services Performance - The network services segment experienced 11% year-over-year growth, attributed to healthy traffic patterns and pricing stability [35][36] Competitive Landscape - Fastly maintains a competitive edge through high performance and customer satisfaction, primarily competing with Akamai and other security vendors [43][44] Additional Insights - Fastly is actively addressing concerns related to AI bot mitigation and the impact of AI on ad-supported sites [38][40] - The company is focused on building relationships and trust with large customers to enhance revenue predictability [14] This summary encapsulates the key insights from Fastly's earnings call, highlighting the company's strategic direction, growth areas, and market positioning.

Core Viewpoint - Cloudflare Inc. (NET) has shown strong performance with a 7.3% increase in the past month, significantly outperforming the Zacks Internet – Software industry's growth of 0.8, raising questions about whether investors should hold the stock now [1]. Group 1: Growth Drivers - Cloudflare is focusing on AI and expanding its Zero Trust security offerings, positioning itself for strong long-term growth potential [4]. - The company secured a three-year Secure Access Service Edge contract worth $4 million with a major U.S. investment firm, enhancing its position in the enterprise security space [5]. - Cloudflare's AI offerings, including Workers AI and AI Gateway platforms, are gaining traction, optimizing performance and security for AI workloads [5]. - The company's AI solutions deliver up to 10 times price performance improvements over traditional hyperscalers, making it a critical infrastructure provider as AI adoption accelerates [6]. Group 2: Financial Performance - Cloudflare's go-to-market strategy has improved sales execution, with significant customer conversions in the fourth quarter, where 80% of new sales hires focused on enterprise clients [7]. - Notable customer wins include a $20 million five-year contract with a Fortune 100 technology firm and a $13.5 million deal with a leading AI company, highlighting growing enterprise traction [8]. - The company reported an operating income of $67.2 million in the fourth quarter, up 69% year over year, with an operating margin expanding 360 basis points to 14.6%, reflecting improved operational efficiency [9]. - For 2025, Cloudflare forecasts non-GAAP earnings per share between 79 cents and 80 cents, indicating year-over-year growth of 5.33% [10]. Group 3: Competitive Landscape - The market for web infrastructure and security services is highly competitive, with established players like Akamai Technologies, Fastly, and Amazon Web Services vying for market share [11]. - Akamai offers a range of infrastructure and security services, while Fastly provides solutions like Compute@Edge and a strong security portfolio [12]. - Amazon offers various services including Amazon CloudFront and security solutions, with new entrants and niche players adding to competitive pressure [13]. Group 4: Valuation Concerns - Cloudflare is currently trading at a forward sales multiple of 18.39X, compared to the Internet - Software industry's valuation of 4.86X, indicating overvaluation [14]. Group 5: Investment Recommendation - Despite strong growth prospects, Cloudflare's current overvaluation poses concerns for investors, suggesting a hold position for now [17]. - The company carries a Zacks Rank 3 (Hold) at present, indicating a prudent move for patient investors [18].