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    FSLY
    Earnings call· Jun 2026(Q2 FY26)

    Fastly Q2 FY26 earnings call FSLY

    Aug 5, 2026 Source

    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

    10
    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

    3
    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%——

    Operational metrics

    17
    Non-GAAP gross margin
    65.8%up 680 bps from Q2 2025
    Q2 FY26

    Record high gross margin, exceeding guidance midpoint of 64%.

    Non-GAAP operating income
    $27 million
    Q2 FY26

    Exceeded the high end of operating income guidance range of $12 million to $16 million. Fourth consecutive quarter of operating profit.

    Non-GAAP operating margin
    14.7%expanded from negative 3% in Q2 2025
    Q2 FY26

    Record operating margin, demonstrating inherent operating leverage.

    Non-GAAP EPS
    $0.15compared to negative $0.03 per diluted share in Q2 2025
    Q2 FY26

    Diluted earnings per share.

    Adjusted EBITDA
    $38.1 millioncompared to $8.9 million in Q2 2025
    Q2 FY26

    Adjusted EBITDA for the quarter.

    Adjusted EBITDA margin
    21%compared to 6% in Q2 2025
    Q2 FY26

    Adjusted EBITDA as a percentage of revenues.

    Cash and investments balance
    $337 millionsequential increase of $7 million over Q1 2026
    Q2 FY26

    Includes cash, cash equivalents, marketable securities and investments, including those classified as long term.

    Net cash balance
    $14 million
    Q2 FY26

    Positive net cash balance at quarter end.

    Infrastructure capital expenditures
    17%
    Q2 FY26

    CapEx was frontloaded in 2026 to ensure adequate equipment given supply chain constraints.

    Incremental gross margin flow-through
    96%up from 47% a year ago
    Q2 FY26 TTM

    Trailing 12-month basis.

    Incremental operating margin flow-through
    79%
    Q2 FY26 TTM

    Trailing 12-month basis, significantly above long-term target.

    Revenue growth
    23%YoY
    Q2 FY26

    Fastest revenue growth quarter in almost 4 years.

    Revenue growth from top 10 customers
    48%YoY
    Q2 FY26

    Top 10 customers represented 37% of total revenue.

    Revenue growth from customers outside top 10
    12%YoY
    Q2 FY26

    Growth from customers outside the top 10.

    Large customer count
    624
    Q2 FY26

    Customers with more than $100,000 in annualized revenue in the quarter.

    AI-generated traffic growth
    6.5xrate of human traffic
    Q2 FY26

    AI-generated traffic is growing significantly faster than human traffic.

    Operating expenses
    $93.7 million
    Q2 FY26

    Came in better than anticipated due to disciplined expense management and timing of new hires.

    Industry KPIs

    4
    MetricValueDetails
    Rpo current rpo$341 millionUSD
    Customer logo metrics624customers
    Large customer cohorts37%% of revenue
    Net revenue dollar retention117%%

    Orderbook & backlog

    1
    Remaining Performance Obligations (RPO)$341 millionQ2 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

    6
    LALIGABuilt 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.

    SkyfireLeveraging 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 platformChose 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 customerChose 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 retailerExpanded use of Fastly's platform with a multiyear, multimillion-dollar commitment, replacing a long-time incumbent security vendor.multimillion-dollarmultiyear

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

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

    Secured through a managed service partner.

    Risks & headwinds

    3
    Customer concentrationOngoing

    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 impactQ3 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 normalizationQ3 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

    5

    Revenue growth from customers outside top 10

    next quarter
    Current12% YoY
    TargetAcceleration

    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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.