Analyzing Fastly Stock: Should Investors Buy or Avoid the Edge Computing Company?

The Opportunity in Fastly

Given its positives and negatives, investors may struggle to make sense of Fastly stock. Edge computing companies like Fastly operate data centers throughout the world. This means that no matter where one is located, an available server is nearby.

A Lackluster Financial Performance

Unfortunately, Fastly does not appear to have capitalized on this opportunity as it should. In 2023, revenue of $506 million rose 17% from year-ago levels. This was well below the predicted growth for the industry. Moreover, its remaining performance obligations (RPO) actually fell 1% versus the previous quarter. Given the fast growth of the industry, it is a negative sign that the company is making progress on what should be a growing backlog.

Still, not all of Fastly's financials are negative. Its annual revenue retention rate is above 99%, meaning it holds on to nearly all its customers. Also, net revenue retention was 113%. While that fell slightly from 114% a year ago, it shows that long-term customers continue to spend more on its platform.

Investing in Fastly Stock

At such levels, Fastly is a hold and could arguably be a buy for some investors. Admittedly, investors should probably choose Cloudflare over Fastly if valuations were similar, as Cloudflare seems to have capitalized on the industry's growth more effectively.

However, Fastly's P/S ratio is less than one-sixth that of Cloudflare, giving investors some justification to buy Fastly shares as a speculative investment. Considering that Fastly continues to grow and retain its client base, the rapid growth of the edge computing industry may create a buy case for more risk-tolerant investors.