10-Q: Fastly Reports Q3 2025 Revenue Growth, Net Loss Narrows

Fastly, Inc. announced its third-quarter 2025 results, reporting a 15% revenue increase to $158.2 million and a reduced net loss of $29.5 million, alongside ongoing efforts to remediate a material weakness in internal controls.

Summary

• Revenue for the three months ended September 30, 2025, increased by 15% to $158.2 million, up from $137.2 million in the same period of 2024.
• Net loss for Q3 2025 narrowed to $29.5 million, an improvement from a net loss of $38.0 million in Q3 2024.
• Gross profit for Q3 2025 was $92.3 million, a 24% increase year-over-year, with gross margin improving to 58% from 54%.
• Operating expenses for Q3 2025 increased by 5% to $121.1 million, but decreased as a percentage of revenue to 77% from 84%.
• The company's enterprise customer count grew to 627 as of September 30, 2025, from 576 in the prior year, while the total customer count decreased to 3,223 from 3,638.
• The Last-Twelve Months Net Retention Rate (LTM NRR) improved slightly to 105.8% as of September 30, 2025, from 105.3% in the prior year.
• Cash and cash equivalents decreased to $113.1 million as of September 30, 2025, from $286.2 million as of December 31, 2024, though marketable securities increased significantly.
• A material weakness in internal control over financial reporting related to the revenue process was identified, primarily due to a lack of sufficiently qualified personnel and control deficiencies, with remediation efforts underway.
• The company is involved in ongoing securities class action and stockholder derivative lawsuits, with motions to dismiss and amended complaints being filed.
• A significant portion of the 2026 Convertible Senior Notes, totaling $188.6 million, has been reclassified as current debt due to its maturity on March 15, 2026.

Sentiment

Score: 7

Explanation: The company shows strong operational improvements with solid revenue growth, narrowed net losses, improved gross margins, and significantly increased operating cash flow. Growth in enterprise customers and LTM NRR are positive indicators. However, these positives are tempered by the identified material weakness in internal controls, ongoing legal proceedings, the reclassification of a substantial portion of debt to current liabilities, and the uncertainty surrounding the TikTok ban, which collectively present notable financial and governance risks.

Positives

• Revenue increased by 15% for Q3 2025 to $158.2 million and by 12% for the nine months ended September 30, 2025, to $451.4 million, year-over-year.
• Net loss significantly narrowed to $29.5 million in Q3 2025 from $38.0 million in Q3 2024, and to $106.2 million for the nine months ended September 30, 2025, from $125.2 million in the prior year.
• Gross profit increased by 24% in Q3 2025, with gross margin improving to 58% from 54% in the same period last year.
• Enterprise customer count increased to 627 from 576 year-over-year, indicating success in attracting and retaining higher-value customers.
• Last-Twelve Months Net Retention Rate (LTM NRR) improved to 105.8% from 105.3%, demonstrating increased revenue from existing customers.
• Security revenue grew by 30% in Q3 2025 to $34.0 million, primarily driven by an increase in Next-Gen WAF revenue.
• Other revenue (including Compute and Observability solutions) grew by 51% in Q3 2025 to $5.4 million, indicating strong adoption of newer offerings.
• Operating expenses as a percentage of revenue decreased to 77% in Q3 2025 from 84% in Q3 2024.
• Loss from operations narrowed to $28.8 million in Q3 2025 from $40.6 million in Q3 2024.
• Net cash provided by operating activities was $72.0 million for the nine months ended September 30, 2025, a substantial increase from $11.2 million in the prior year.

Negatives

• Total customer count decreased to 3,223 as of September 30, 2025, from 3,638 in the prior year.
• Cash and cash equivalents decreased significantly from $286.2 million as of December 31, 2024, to $113.1 million as of September 30, 2025.
• A material weakness in internal control over financial reporting was identified, primarily due to a lack of sufficiently qualified personnel and control deficiencies in the revenue process.
• Interest expense increased substantially to $3.2 million in Q3 2025 from $0.5 million in Q3 2024, primarily due to the coupon interest of the 2028 Notes.
• Interest income decreased by 19% in Q3 2025 and 21% for the nine months ended September 30, 2025, due to lower interest rates and investment balance.
• The company has a history of operating losses and an accumulated deficit of $1,099.0 million.
• Ongoing securities class action and stockholder derivative lawsuits create legal uncertainty and potential future liabilities.
• The potential impact of the TikTok ban legislation could lead to a reduction in traffic levels from a major customer, negatively impacting the business.
• A significant portion of the 2026 Convertible Senior Notes ($188.6 million) is classified as current debt, maturing on March 15, 2026, posing a near-term repayment obligation.

Risks

• Platform failures due to defects, interruptions, outages, or delays could lead to customer loss, service performance claims, or significant costs.
• Inability to attract new enterprise customers or expand usage by existing ones would harm the business.
• Substantial portion of revenues from a limited number of customers and industries makes the business vulnerable to loss or reduced usage by major customers.
• Component delays, shortages, or price increases could interrupt server construction and impact operating results.
• History of operating losses makes evaluating current business and prospects difficult and increases investment risks.
• Compromised information technology systems or data, or those of third parties, could lead to regulatory actions, litigation, fines, disruptions, revenue loss, and reputational harm.
• Failure to efficiently develop and sell new products or respond to rapidly changing technology, standards, and customer needs could make products less competitive.
• Inaccurate revenue forecasting or failure to manage expenditures could adversely affect operating results.
• Failure to effectively develop and expand marketing and sales capabilities could harm customer base growth and market acceptance.
• Intense competition in the market could harm the business if not effectively managed.
• Failure to maintain and enhance the brand could impair customer base expansion and financial condition.
• Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert management attention, disrupt business, and dilute stockholder value.
• Failure to attract and retain qualified personnel could prevent execution of business strategy.
• Reliance on highly skilled personnel, including senior management, and the loss or transition of such personnel could harm the business.
• Involvement in class-action lawsuits and other litigation matters is expensive and time-consuming, with potential for adverse outcomes.
• Incorrect estimates or judgments related to critical accounting estimates could adversely affect results of operations.
• Material weakness in internal control over financial reporting could lead to loss of investor confidence and harm stock price.
• Stock price volatility and potential decline in common stock value.
• Inability to scale business quickly enough to meet growing customer needs could harm the business.
• Insufficient transmission bandwidth and colocation space could disrupt the platform and lead to revenue loss.
• Inherent liability risks due to the nature of the platform and security solutions.
• Dedication to values (e.g., not allowing platform use for violence/hate) may negatively influence financial results.
• Growth depends on partner relationships; failure could harm the business.
• Operating in an emerging and evolving market (edge computing) with uncertain growth and adoption rates.
• Fluctuations in financial results and key metrics make future projections difficult.
• Pricing models subject to challenges, making it difficult to derive sufficient value.
• Long and unpredictable sales and onboarding cycles with considerable time and expense.
• Failure to achieve sufficient market acceptance for the platform and new products.
• Reliance on third-party hosting providers that may be difficult to replace.
• Risks associated with credit card and other online payment processing methods.
• Failure to maintain compatibility with third-party applications.
• Service level commitments; failure to meet them could lead to credits or terminations.
• Failure to offer high-quality support could harm the business.
• Scrutiny relating to environmental, social, and governance factors may impose additional costs and risks.
• International operations and expansion create operational challenges (e.g., currency, regulations, IP protection, political instability, inflation).
• Current and future indebtedness could restrict operations and ability to respond to business changes.
• Seasonality may cause fluctuations in sales and operating results.
• Failure to comply with U.S. and foreign governmental laws and regulations (e.g., TikTok ban, data localization, AI regulations).
• Activities of customers or content on their websites may violate laws/terms of service, leading to lawsuits or liability.
• Sales to highly regulated organizations and government entities are subject to challenges and risks.
• Dependence on customers' continued and unimpeded access to the platform on the Internet (net neutrality).
• Subject to anti-corruption, anti-bribery, anti-money laundering laws.
• Changes in effective tax rate or tax liability may harm the business.
• Could be required to collect additional sales taxes or be subject to other tax liabilities.
• Adverse tax laws or regulations could be enacted or existing laws applied adversely.
• Ability to use net operating losses (NOLs) may be limited.
• International operations may subject to adverse tax consequences.
• Governmental export and import controls could impair ability to compete or subject to liability.
• Exposure to fluctuations in currency exchange rates.
• Unfavorable conditions in industry or global economy, rising inflation, or IT spending reductions could harm business.
• Substantial costs in protecting or defending intellectual property; failure could impair competitive position.
• Legal proceedings and litigation relating to intellectual property disputes are costly and may subject to liability.
• Open source software use may restrict functionality or require source code release.
• Provisions in agreements potentially expose to substantial liability for intellectual property infringement, data protection, and other losses.
• Inability to raise funds to repay or settle conversions of the Notes in cash or to repurchase the Notes upon a fundamental change.
• Conversion of the Notes may dilute the ownership interest of stockholders or may otherwise depress the price of common stock.
• Servicing debt requires a significant amount of cash, and the company may not have sufficient cash flow to pay its substantial debt.
• Regulatory actions and other events may adversely affect the trading price and liquidity of the Notes.
• The conditional conversion feature of the Notes, if triggered, may adversely affect financial condition and operating results.
• Future sales and issuances of capital stock or rights to purchase capital stock could result in dilution of the percentage ownership of stockholders and could cause the price of common stock to decline.
• If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about the business, common stock price and trading volume could decline.
• No intention to pay dividends for the foreseeable future.
• Significant costs as a result of operating as a public company, and management is required to devote substantial time to compliance.
• Anti-takeover provisions in charter documents, the indenture governing the Notes, and under Delaware law could make an acquisition of the company more difficult, limit attempts by stockholders to replace or remove current board of directors or management, and limit the market price of common stock.
• Exclusive forum provisions in the amended and restated certificate of incorporation could limit stockholders' ability to obtain a favorable judicial forum for disputes.

Future Outlook

The company expects to continue incurring operating losses for the foreseeable future due to ongoing investments and strategic initiatives aimed at business growth. Total operating expenses are anticipated to increase with expanded sales and marketing efforts, though research and development, sales and marketing, and general and administrative expenses are expected to decrease as a percentage of revenue over the long term. Management believes current cash, cash equivalents, available borrowing capacity, and operating cash flows will be sufficient for anticipated needs for at least the next twelve months. The company will maintain a full valuation allowance on U.S. Federal and state net deferred tax assets for the foreseeable future and does not anticipate a material impact from the One Big Beautiful Bill Act for 2025. The full impact of the TikTok ban legislation remains uncertain but could lead to reduced U.S. traffic levels from a major customer. Seasonal fluctuations in demand are expected to continue, particularly in Q4, making future forecasting challenging. New accounting guidance is currently being evaluated for its potential impact.

Management Comments

• "Organizations around the world are more dependent on the quality of digital experiences they provide than ever before."
• "At Fastly, we deliver an edge cloud platform capable of delivering fast, safe, and engaging digital experiences."
• "By focusing holistically on the edge cloud from developer inspiration to end-user experience, we have the opportunity to differentiate with our global footprint, dynamic infrastructure, and security solutions."
• "Our mission is to make the Internet a better place where all experiences are fast, safe, and engaging."
• "We want all developers to have the ability to deliver the next transformative digital experience on a global scale."
• "We believe that our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey."
• "We are continuing to bring a durable, consistent, and predictable pipeline of new innovations to our edge cloud platform and software-defined modern network architecture, and are seeing interest from customers in our existing product lines like Network Services, Security, and Other product lines, including Compute and Observability."
• "We will continue to build out a single, unified platform, simplify customer onboarding and service usage, and simplify our pricing and packaging."
• "We are closely monitoring the conflict between Russia and Ukraine, as well as the more recent hostilities in the Middle East, and their global impacts. While the conflicts are still evolving and the outcomes remain highly uncertain, we do not believe the Russia-Ukraine, Israel-Hamas, or other conflicts will have a material impact on our business and results of operations."
• "We believe that our cash and cash equivalents balances, available borrowing capacity under our credit facility, and the cash flows generated by our operations, net of the cash outflows used in our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next twelve months."

Industry Context

The edge cloud market is an emerging Infrastructure as a Service (IaaS) category, characterized by the convergence of Content Delivery Networks (CDNs) with traditional security and application delivery functionalities, alongside the growth of edge computing. This market is highly competitive and rapidly evolving, with Fastly facing competition from established CDN providers like Akamai, cloud giants such as AWS, Google Cloud Platform, and Microsoft Azure, and specialized security vendors like Cloudflare and F5. The industry is also navigating increasing global data localization and cross-border data transfer regulations, as well as the rapidly evolving regulatory landscape for Artificial Intelligence (AI). Geopolitical conflicts and international trade disputes continue to pose risks to supply chains and cybersecurity, while ongoing debates and legal challenges surrounding net neutrality rules in the U.S. could impact internet service provider conduct and Fastly's service delivery.

Comparison to Industry Standards

• The filing does not provide specific comparisons to industry standards or direct comparable company results, making a detailed assessment against global benchmarks challenging.
• The company notes competition from a diverse set of players including Akamai, Cloudflare, F5, Thales (Imperva), Amazon Web Services (AWS), Google Cloud Platform, Microsoft (Azure), Bunny CDN, CDNetworks, CDN77, Qwilt, and Radware, highlighting a fragmented and competitive market.
• Fastly differentiates itself through its programmable edge cloud platform, global footprint, dynamic infrastructure, and security solutions, aiming to provide superior performance and security for modern applications.

Management Changes

Corporate Governance

Legal Proceedings

• Securities Class Action Lawsuit: Ken Kula v. Fastly, Inc., et al. (Case No. 4:24-cv-03170) filed May 24, 2024, alleging violations of Section 10(b) and 20(a) of the Exchange Act for purchases between November 15, 2023, and August 7, 2024. A motion to dismiss was partially granted/denied on September 24, 2025, and a second amended complaint was filed on October 24, 2025. Further motions and replies are due in late 2025 and early 2026.
• Stockholder Derivative Actions: Roy v. Nightingale, et al. (Case No. 3:24-cv-03549-JCS) filed June 12, 2024; Steffens v. Nightingale et al. (Case No. 4:24-cv-03984-DMR) filed July 1, 2024; Sweitzer v. Nightingale, et al. (Case No. 1:24-cv-00969-GBW) filed August 23, 2024; and Bushansky v. Nightingale, et al. (Case No. 2024-1322) filed December 20, 2024. These actions allege breaches of fiduciary duties and other claims, are consolidated, and stayed pending resolution of motions to dismiss in the securities class action.
• The company has not recorded any significant accruals for loss contingencies associated with these lawsuits, as it does not believe an outcome resulting in a loss is probable.

Stakeholder Impact

• Shareholders: Potential for dilution from future equity issuances or convertible note conversions, continued stock price volatility, and the financial and reputational impact of ongoing legal proceedings. No cash dividends are planned for the foreseeable future.
• Employees: Competition for highly skilled personnel, potential impact of stock price volatility on equity awards, and the importance of maintaining company culture amidst growth. Increased compensation may be used to manage attrition.
• Customers: Benefit from improved platform performance, security, and new product offerings (Next-Gen WAF, Compute). Potential for service disruptions from platform failures or bandwidth issues, and uncertainty regarding the impact of the TikTok ban on a major customer.
• Suppliers/Creditors: Exposure to component delays, shortages, and price increases. The company relies on third-party hosting and network providers. Debt obligations, particularly the reclassification of 2026 Notes to current debt, highlight near-term repayment requirements and compliance with credit facility covenants.
• Regulatory Bodies: Ongoing scrutiny due to the identified material weakness in internal controls and the need for compliance with evolving data privacy, AI, export control, and tax laws.

Next Steps

• Continue efforts to attract new customers and expand relationships with existing ones, focusing on product experience, technology investment, and partner ecosystem leverage.
• Invest in products, features, and developer outreach, including building a single, unified platform and simplifying customer onboarding, pricing, and packaging.
• Expand sales and marketing efforts globally, with an increased focus on sales to enterprises.
• Continue investment in platform and network infrastructure, including strategically increasing Points of Presence (POPs) and upgrading technology and hardware.
• Remediate the identified material weakness in internal control over financial reporting by hiring and training qualified personnel, enhancing controls, and improving monitoring of third-party service providers.
• Defendants are due to file a motion to dismiss the second amended complaint in the Ken Kula v. Fastly, Inc., et al. lawsuit by December 9, 2025.
• Lead Plaintiff is due to file an opposition to the motion to dismiss by January 26, 2026.
• Defendants are due to file a reply in support of the motion to dismiss by February 19, 2026.
• Evaluate the impact of recently issued accounting guidance (ASU 2023-09, 2024-03, 2025-05, 2025-06) on future financial statements.
• Monitor the impact of the TikTok ban legislation and how ByteDance might restructure its business, and its potential effect on traffic levels.

Key Dates

Recommendation

Fastly demonstrates promising operational improvements with strong revenue growth, improved gross margins, and a significant reduction in net loss, alongside positive trends in enterprise customer acquisition and net retention. The substantial increase in operating cash flow is also a strong positive. However, these positives are significantly tempered by several material concerns. The identified material weakness in internal controls, while being remediated, indicates underlying operational deficiencies that could impact financial reporting reliability. The ongoing class-action and derivative lawsuits present considerable legal and financial uncertainty. Furthermore, the reclassification of a large portion of the 2026 convertible notes to current debt highlights a substantial near-term liquidity requirement, and the potential impact of the TikTok ban on a major customer adds another layer of revenue risk. Given the mixed signals of strong operational performance against significant financial and governance risks, a 'Hold' recommendation is appropriate for a seasoned investor, suggesting caution while monitoring the remediation of internal controls, the outcome of legal proceedings, and the management of debt maturities.

Keywords

Edge Cloud Platform, Content Delivery Network, Security Solutions, WAF, DDoS, Compute Solutions, Observability Solutions, Financial Results, SEC Filing, 10-Q, Net Loss, Revenue Growth, Enterprise Customers, Net Retention Rate, Convertible Notes, Internal Controls, Cybersecurity, Data Privacy, Litigation, Stock-based Compensation, Fastly