Is Fastly (FSLY) making money in the Edge Cloud?

Fastly (FSLY) could be the poster child for the 2020 Cloud Bubble. In 2020, Fastly’s share price grew from $21.50 on 2 January to $72.63 on 28 October and $68.38 on 29 October 2020.

Astoundingly, Fastly (NYSE: FSLY) hit a high of $128.83 on 13 October 2020. Fastly is one of many cloud-computing companies experiencing explosive share value growth during the coronavirus pandemic.

 Fastly resembles other cloud-services companies such as Twilio (TWLO). For example, Fastly reported a -$14.4 million quarterly operating loss on June 30, 2020. In comparison, Twilo reported a -$102.64 million operating loss on the same day.

Fastly grows and loses money

Overall, Fastly Inc. (NYSE: FSLY) reported $74.66 million in quarterly revenues and a quarterly gross profit of $35.66 million on 30 June 2020.

However, Fastly is growing fast. Stockrow estimates Fastly’s revenues grew by an incredible 61.70% in the quarter ending on 30 June 2020. Fastly’s revenues grew by 38.12% in the quarter ending on 31 March 2020 and 60.07% in the quarter that ended on 31 December 2019.

Additionally, Fastly’s quarterly gross profit grew from $33.41 million on 31 December 2019 to $35.66 million on 31 March 2020. Moreover, Fastly’s quarterly revenues grew from $58.94 million on 31 December 2019 to $62.92 million on 31 March 2020.

Conversely, Fastly is burning cash rather than making money. Fastly (FSLY) reported a negative quarterly operating cash flow of -$8.78 million on 30 June 2020.

Fastly offers Impressive Growth

Moreover, Fastly borrows money to pay for expansion. Fastly’s quarterly financing cash flow grew from $1.93 million on 31 December 2019 to $281.36 million on 30 June 2020.

Fastly reported a quarterly ending cash flow of $234.92 million on 30 June 2020. Unfortunately, I think most of that cash comes from financing.

Fastly offers impressive value growth. Fastly’s total assets grew from $320.97 million on 31 December 2019 to $323.85 million on 31 March 2020 to $607.86 million on 30 June 2020. Thus, Fastly’s total value nearly doubled in six months.

Similarly, Fastly’s cash and short-term investments grew from $186.67 million on 31 March 2020 to $454.11 million on 30 June 2020. In the final analysis, Fastly is a great growth stock, but it generates small amounts of cash and no income.

What is Fastly?

Fastly (FSLY) is an edge-cloud company that specializes in content delivery.

Edge cloud companies decentralize process power to the edges of a network. For instance, a law firm could use the edge cloud to decentralize its database among partners working from home.

The edge cloud allows organizations to move intelligent tasks and algorithms from servers to other devices over the cloud. Thus, an investment bank could disperse its trading algorithms among bankers’ laptops.

Demand for edge-cloud solutions is high because many professionals are working from home in the pandemic. Many of those professionals need access to enormous amounts of computing power.

Engineers and articles need access to computer assisted design. Video game designers and filmmakers need access to digital animation tools. Software engineers need the ability to build algorithms and platforms from home. The edge cloud provides that processing power.

How Fastly profits from Coronavirus

Fastly profits from coronavirus because it specializes in the delivery of applications through its edge cloud platform.

Fastly (NYSE: FSLY) claims its edge cloud network can transmit 100 terabytes per second (Tbps). A terabyte is one billion bits or bytes of data. Impressively, Fastly claims its network can process 19 trillion requests a month. In addition, Fastly claims its edge cloud can deploy data in 13 seconds.

Fastly claims its content delivery network (CDN) is lighting fast. The CDN allows Fastly to keep enormous caches of data in its cloud. Plus, solid state drives (SSDs) enable Fastly customers to access content without extra trips to the original storage.

That feature can allow fast page load time. Fastly promises instant purging of problem and constant current content. For instance, a news site can instantly purge old articles with misinformation and replace them with new articles with up-to-date information. Fastly claims it can purge content at a rate of 150 milliseconds.

Why Fastly is Popular

Consequently, administrators could instantly purge bad code, viruses, or malware as they detect those threats using Fastly. Plus, developers can add extra features as soon as they become available.

In addition, administrators can use Fastly’s edge cloud to make spilt-second decisions and implement changes in real-time. For example, an ecommerce site administrator can remove products from its catalog as soon as they go out of stock.

Plus, Fastly claims it platform can deliver content as soon as consumers as want it. Ideally, sports fans could watch the game as they play it using a video-platform in Fastly’s edge cloud.

Meanwhile, game developers can add new situations, characters and weapons instantly with Fastly.

Businesses Love Fastly

Fastly has some impressive customers, including the A&E Networks. A&E is the Walt Disney Company (DIS) subsidiary that owns the History Channel and A&E.

Other Fastly customers include the fast-growing news sites The Guardian and BuzzFeed and Stripe. Stripe is a fast-growing fintech company that services such fast-growing plastforms as Zoom (ZM), Instacart, and Slack.

Another Fastly customer is the enormous open-sourced software depository GitHub. GitHub a Microsoft (MSFT) subsidiary operates over 44 million software repositories. GitHub claims over 40 million developers were using its depositories in 2019. The State of the Octoverse claims over 10 million new users joined GitHub in 2019.

Those developers received over 87 million pull requests in 2019. That number grew by 28% between 2018 and 2019.  In addition, those developers closed over 20 million issues in 2019.

How Fastly profits form Streaming Video

One of Fastly’s most impressive capabilities is its video-on-demand (VOD) capabilities. Fastly claims it can speed up streaming video with cache rates of 97%.

In addition, Fastly claims its application programming interface (API) can deliver millions of high-quality video streams at once in all major HTTP video-streaming formats. That means a news organization can deliver video reports to consumers watching in Android, Windows, and iOS.

Streaming video is a growing market. Statista predicts the number of Streaming Video on Demand (SVOD) will grow from 642 million in 2019 to 1.1 billion in 2025. Plus, Grandviewresearch estimates the compound annual growth (CAGR) rate for streaming video will be 20.4% a year from 2020 to 2027.

Grandviewresearch estimated the value of the global streaming market at $42.6 billion in 2019.  Thus, I estimate the global streaming video market could grow by $60.83 between 2020 and 2027. To explain, 20.4% of $42.6 billion is $8.6904 billion and $8.6904 billion times seven is $60.83 billion. Thus, the global streaming video market could be worth $103.43 billion in 2027.

In the final analysis, I consider Fastly (NYSE: FSLY) an impressive growth stock that Mr. Market overpriced at $68.38 on 29 October 2020. I predict Fastly will not disappoint investors seeking growth. However, I do not expect to make money or generate cash for a long time.