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Fastly (FSLY) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 5, 2026

Source: earnings call transcript

Executive summary

Fastly Q2 FY26 — Record Revenue and Profitability Driven by Platform Strategy and AI Tailwinds

Fastly delivered a strong quarter, achieving record revenue and profitability, driven by its platform strategy and increasing adoption of security and compute products. The company's focus on a unified platform and co-innovation with customers is translating into deeper relationships and greater wallet share, particularly as AI-driven traffic becomes a significant tailwind. Management is committed to disciplined execution and expects continued financial strength, with a focus on expanding its go-to-market efforts beyond its largest customers.

Highlights

5

  • Revenue reached a record $183.3 million, up 23% year-over-year, exceeding the high end of guidance.

  • Gross margin hit a record 65.8%, up 680 basis points from Q2 2025.

  • Operating income came in at $27 million, with a record operating margin of 14.7%.

  • Trailing 12-month net retention rate (NRR) rose to 117%, the highest level in over 3 years.

  • Security revenue grew 43% year-over-year to $41.7 million, now representing 23% of total revenue.

Concerns

2

  • Growth from customers outside the top 10 decelerated to 12% year-over-year, down from Q1.

  • Top 10 customers represented 37% of revenue, up 3 points sequentially, indicating increased concentration.

Guidance & targets

CategoryTargetConfidence
Revenue
$184 million to $190 million
high materiality
High
Gross Margin
65% plus or minus 50 basis points
medium materiality
High
Non-GAAP Operating Profit
$20 million to $24 million
high materiality
High
Non-GAAP Net Earnings Per Diluted Share
$0.11 to $0.13
high materiality
High
Full-Year 2026 Revenue
$732 million to $746 million
high materiality
High
Full-Year 2026 Gross Margin
65% plus or minus 50 basis points
medium materiality
High
Full-Year 2026 Non-GAAP Operating Profit
$88 million to $96 million
high materiality
High
Full-Year 2026 Non-GAAP Net Earnings Per Diluted Share
$0.50 to $0.54
high materiality
High
Full-Year 2026 Infrastructure Capital Spend
10% to 12% of revenue
medium materiality
High
Full-Year 2026 Free Cash Flow
$40 million to $50 million
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Network Services
Accelerated growth from the prior quarter, driven by market share gains where performance matters.
$133.9 million17%——
Security
Increased mix supports long-term objective of building a diversified, higher-value business. Driven by cross-sell and upsell, with DDoS protection and bot management growing at triple-digit rates.
Percentage of revenue: 23%
$41.7 million43%8%—
Other Products
Driven primarily by sales of compute products, supporting new customer requirements in AI and related areas.
$7.7 million69%——

Orderbook & backlog

Remaining Performance Obligations (RPO) $341 million Q2 FY26

38% YoY

Current portion of RPO was 79% of total RPO, growing 44% YoY. Improved RPO benefits from improved go-to-market discipline with larger upfront commitments.

Deals & partnerships

LALIGA Built an AI-driven real-time detection system to identify and shut down pirated streams.

Addresses illegal streaming, which costs clubs an estimated $700 million a year. System identifies and stops pirated streams in real-time at the request path.

Skyfire Leveraging agentic traffic at the edge, Skyfire uses Fastly compute to integrate verified agent identity and payment-backed credentials directly into the platform.

Transforms agent traffic from anonymous automation into accountable economic activity.

Leading fintech platform Chose Fastly for increased security capabilities, platform flexibility, and resilience after prior catastrophic outages.

Serves more than 0.5 million businesses. Prior outages put critical partnerships at risk.

Global education technology customer Chose Fastly's NG WAF, managed security service, and network services after a significant data breach with their prior WAF.

Suffered a data breach affecting millions of user records. Fastly handles application traffic without disrupting their large active user base.

Leading U.K. health and beauty retailer Expanded use of Fastly's platform with a multiyear, multimillion-dollar commitment, replacing a long-time incumbent security vendor. multimillion-dollar multiyear

Part of a broader platform modernization, consolidating all edge services on Fastly.

National public broadcaster in Europe Fastly now powers live and on-demand streaming delivery through a managed service partner.

Secured through a managed service partner.

Risks & headwinds

Customer concentration Ongoing

Top 10 customers represented 37% of revenue in Q2 FY26, up from 34% in Q1 FY26. Revenue from customers outside the top 10 grew 12% YoY, decelerating from prior quarter.

Mitigation:Continued focus on go-to-market transformation to drive new logo acquisition and growth from a broader customer base. Management acknowledges more work is needed to diversify revenue sources.

Episodic revenue impact Q3 FY26 (World Cup impact reduced)

Less than half of the $10 million upside to Q2 revenue guidance midpoint was driven by episodic events (e.g., World Cup, other live events).

Mitigation:Revenue guidance reflects these dynamics. The impact of the World Cup will be reduced in Q3 (25% of games, 1/3 of viewership in Q3).

Operating expense normalization Q3 FY26 and Q4 FY26

Operating expenses were lower than anticipated in Q2 due to timing of new hires and discretionary spend.

Mitigation:Expects headcount additions and discretionary spend to bring OpEx back to normalized growth levels for Q3 and Q4.

What to watch in Q3 FY26

Revenue growth from customers outside top 10

next quarter
Current 12% YoY
Target Acceleration

Why it matters

Indicates success of go-to-market transformation and diversification beyond largest customers, crucial for long-term sustainable growth.

I think it's fair to say that we'd like to see more new logos and more growth outside of those top customers to complement the robust growth that we're seeing with the top customers.

Find out whether FSLY delivers this. Inve re-checks your case every morning.

Q&A highlights

What drove the Network Services jump, especially given seasonal trends? Was AI traffic a factor, and are you gaining market share?

Network Services growth was driven by gaining market share, particularly where performance is critical. AI and agentic traffic are tailwinds across the platform, including Network Services, though their impact is more pronounced in Security and Compute. Specific AI tool usage was identified as a catalyst for traffic growth in some accounts.

“Yes, we do believe that we're gaining share, particularly as we like to say, where performance matters. And I think there were some third-party research that's come out in the last few months that agreed with that assessment. On the AI and agentic question, we don't necessarily break that out as a distinct set of traffic. It drives demand in our existing products and across our platform.”

asked by Aidan Daniels · answered by Kip Compton

2 min read 6 chapters

Detailed narrative

Platform Strategy Driving Growth and Profitability

Fastly's unified platform strategy is proving successful, leading to deeper customer relationships and increased wallet share. This approach allows customers to consolidate their stack on Fastly, leveraging its flexible platform for various needs. The strategy has resulted in five consecutive quarters of improving net retention rate and six consecutive quarters of positive free cash flow, demonstrating both growth and profitability.

AI as a Significant Tailwind

AI-driven traffic is emerging as a major tailwind for Fastly, growing at roughly 6.5 times the rate of human traffic. This agentic traffic increases demand for security and compute products, as customers require real-time decisions on authorization, caching, throttling, and blocking. Fastly's platform is positioned as a trusted control plane for these decisions, driving acceleration in its security and compute offerings.

Security and Compute Product Acceleration

Security revenue grew 43% year-over-year, driven by cross-sell and upsell, with DDoS protection and bot management growing at triple-digit rates. Other products revenue, primarily compute, grew 69% year-over-year. The company sees significant opportunity in these areas as customers seek to manage complex machine traffic and consolidate security solutions onto Fastly's effective NG WAF and broader platform.

Go-to-Market Transformation and Customer Concentration

The company's go-to-market transformation efforts are showing progress, contributing to overall revenue growth. However, there is an acknowledgment that more work is needed to drive new logo acquisition and growth outside of the top customers. While the top 10 customers' revenue grew 48% year-over-year and represented 37% of total revenue, growth from customers outside this cohort was 12% year-over-year, indicating a need to diversify revenue sources.

Capital Efficiency and Gross Margin Expansion

Fastly achieved a record gross margin of 65.8%, an increase of 680 basis points year-over-year, driven by higher revenue relative to infrastructure costs and disciplined cost management. The company's software-defined infrastructure and consolidated platform allow for capital-efficient expansion, utilizing compute resources across network services and security workloads. This structural efficiency underpins expanding gross margins and positions Fastly to manage global traffic trends with capital discipline.

Pricing Environment and Customer Value

The pricing environment is described as rational, with mid-single-digit price erosion primarily due to volume discounts as customers increase their usage. Fastly emphasizes honoring commitments and focusing on the value provided to customers through its full suite of products, rather than implementing unilateral price surcharges. The company believes its performance, reliability, and effective security products are the dominant factors driving traffic gains and customer switches, not discounting.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.