Executive Summary
•Revenue reaccelerated to a record $183m in Q2 2026, +23% YoY, the fastest in almost four years, powered by security +43% YoY and net retention at 117%, the highest in over three years and the fifth straight quarter of improvement.
•Margins inflected decisively: record 65.8% non GAAP gross margin and 14.7% non GAAP operating margin, with six consecutive quarters of positive free cash flow, though GAAP remains loss making at a -11.8% net margin.
•Valuation at ~39x NTM P/E and ~5.3x NTM P/S screens cheap versus its own history (EV/Rev 4.8x vs 2y avg 8.6x) but rich versus Akamai, and consensus sits at Hold with a $28.33 target.
•The bull case is undercut by heavy insider selling ($22.3m net, zero open market buys) and institutional exits (265 positions closed QoQ), leaving customer concentration as the key unhedged risk.
Financial Snapshot
•Revenue (TTM): $687.2m
•Revenue (Q2 2026): $183m (+23% YoY, record)
•Gross Margin (TTM GAAP): 61.5%
•Gross Margin (Q2 2026 non GAAP): 65.8% (record)
•Operating Margin (TTM GAAP): -7.9%
•Operating Margin (Q2 2026 non GAAP): 14.7% (record)
•Net Margin (TTM): -11.8%
•ROE: -8.4%
•Debt/Equity: 40.2%
•Net Retention Rate: 117%
•Free Cash Flow: positive for 6 consecutive quarters
•Security and Other run rate: ~$200m annualised (+46% YoY)
Forward Outlook
•NTM revenue: $0.74b (+14.8% YoY), a step down from the +23% just delivered
•FY+2 revenue: $0.85b (implies ~15% growth sustained)
•NTM EPS: $0.62, revised up from $0.60 a month ago (+3.0%), a positive divergence against a -17.7% one month share price move
•FY+2 EPS: $0.64 (forward EPS growth 22.4%)
•Margin trajectory: gross margin expected to hold near 65% as network efficiency improves, with operating margin scaling toward the mid to high teens
•Security mix: DDoS and bot management growing at triple digit rates, with security expected to become a larger share of the business
•AI compute: positioned as an expansion engine, with machine traffic growing ~6.5x the rate of human traffic
Valuation Analysis
•NTM P/E: ~39x (on $0.62 NTM EPS; FMP screens 46.5x on a stale $0.52 figure)
•NTM P/S: ~5.3x (on $0.74b NTM revenue)
•NTM EV/EBIT: ~33x
•BF EV/Rev: 4.8x vs 2y avg 8.6x (-45%, -0.5 SD), implied price at avg $44.31
•LF P/BV: 3.9x vs 2y avg 5.7x (-31%, -0.3 SD), implied price at avg $35.47
•BF EV/EBITDA: 19.9x vs 2y avg 329x (distorted by a near zero prior base, low signal value)
•Consensus price target: $28.33 (median $28.5, range $23 to $35)
•Ratings: 6 Buy / 11 Hold / 1 Sell (consensus Hold)
•NET (Cloudflare): ~194x NTM P/E, ~$116b mcap, premium edge and AI multiple, direct competitor
•AKAM (Akamai): ~34x TTM P/E, ~$13.4b mcap, security and delivery incumbent, value anchor
•AMZN (Amazon): ~20x TTM P/E, ~$2.7t mcap, central cloud with edge adjacency
Key Risks & Catalysts
Risks
•Customer concentration, especially ByteDance/TikTok traffic exposure: exact current share Not disclosed, but a single large customer loss would reset the growth narrative
•Insider selling: 35 open market sells, zero buys, net -811,602 shares (-$22.3m) in 90 days, led by the CTO at $16.7m
•Institutional flight: 42 holders (-278 QoQ), 265 positions closed, ownership down to 0.4% of shares
•Deceleration risk: consensus NTM growth of 14.8% sits well below the +23% just reported, implying the reacceleration may not persist
•Competitive squeeze from Cloudflare on platform breadth and Akamai on price, plus hyperscaler edge offerings
•GAAP profitability still elusive (net margin -11.8%), leaving the equity reliant on non GAAP framing
Catalysts
•Continued net retention expansion above 117%, signalling durable platform cross sell
•Security attach acceleration: DDoS and bot management at triple digit growth feeding the ~$200m security and other run rate
•AI edge compute wins and agent governance partnerships (Skyfire, ContentGuard) converting machine traffic into monetised relationships
•Margin follow through: holding 65% gross margin while scaling operating margin into the high teens
•Estimate revisions continuing to drift higher against a depressed share price
•Potential institutional re entry if free cash flow compounds and GAAP losses narrow
Investment Thesis
Fastly has executed a genuine operational turnaround: revenue reaccelerated to +23% YoY, gross margin hit a record 65.8%, non GAAP operating margin reached 14.7%, and free cash flow has been positive for six straight quarters. The platform strategy is working, with security growing 43% and net retention at a three year high of 117%, which supports the view that cross sell into the existing base is the real growth engine rather than new logo acquisition. On 39x NTM P/E and 5.3x NTM P/S, the stock trades at a steep discount to its own two year history (EV/Rev 4.8x vs 8.6x average) and a fraction of Cloudflare's multiple, which frames the re rating case.
The problem is the quality of the setup around the numbers. Consensus models only 14.8% NTM revenue growth, well below the just reported 23%, so the market is not yet underwriting sustained reacceleration. Meanwhile insiders have sold $22.3m with no offsetting buys and 265 institutional positions closed in a single quarter, a distribution pattern that argues the smart money is treating recent strength as a selling opportunity. Customer concentration, particularly ByteDance/TikTok, remains the unquantified tail risk that could invalidate the growth trajectory overnight.
Net, this is a Hold. The margin inflection and estimate revision trend are real and worth owning, but the deceleration implied by consensus, the insider and institutional selling, and the concentration overhang cap the upside. Fair value is $28, in line with consensus, implying roughly 15% upside from $24.41. A turn constructive would require NTM growth estimates revised toward the high teens plus evidence of security mix shifting the revenue base. A break below $22 would signal the reacceleration thesis is fading; a clean beat and raise with net retention above 120% would justify a move toward the $34 to $35 range.
