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Fastly hits profitability inflection in Q2
Edge cloud platform company beats earnings and raises guidance, but customer concentration and capex spending raise questions.
In brief
Edge cloud platform company beats earnings and raises guidance, but customer concentration and capex spending raise questions. Fastly achieved sustainable profitability with record margins and strong revenue growth, but investors should watch whether the company can maintain cost discipline while scaling higher-margin…
Fastly posts record Q2 revenue
The edge cloud company generated $183.3 million in Q2 2026 revenue, up 23% year-over-year and beating analyst expectations. The beat signals strengthening demand across its platform offerings.
“record second-quarter revenue of $183.3 million, representing 23% year-over-year growth, which exceeded analyst consensus expectations”
Gross margins expand dramatically
Cost of revenue stayed flat at $67.4 million despite a $34.6 million revenue increase, lifting gross profit by 43% and expanding gross margin by 8.8 percentage points. Non-GAAP gross margin hit a record 65.8%.
“Non-GAAP gross margin reached a record 65.8%”
Security segment accelerates growth
Security revenue jumped 43% year-over-year to $41.7 million, now representing 23% of total revenue. This nearly 2.5x faster growth than Network Services validates the diversification strategy.
“Security revenue accelerated to $41.7 million (up 43% year-over-year, 23% of total revenue)”
Customer expansion metrics strengthen
Net retention rate reached 117% in Q2, up from 113% in Q1 and the highest in over three years. Remaining performance obligations jumped 38% year-over-year to $341 million, providing visibility into future revenue.
“Last-12-month net retention rate (LTM NRR) reached 117% in Q2 2026, up from 113% in Q1 2026”
Profitability inflection confirmed
GAAP net loss narrowed 58% to $15.6 million from $37.5 million year-over-year. Non-GAAP operating income reached $27.0 million and non-GAAP EPS hit $0.15, beating consensus by $0.08.
“non-GAAP EPS of $0.15 beating consensus by $0.08”
Free cash flow declines despite gains
Operating cash flow improved 52% to $39.3 million, but free cash flow fell 67% to $3.6 million due to elevated capital expenditures. The company is investing heavily in infrastructure to support future growth.
“free cash flow declined to $3.6 million from $10.9 million in Q2 2025, a 67% decrease”
Customer concentration risk rising
Top-ten customers now account for 37% of Q2 revenue, up from 31% one year earlier. Any material spending change from a large customer could cause outsized revenue volatility.
“The top-ten customers accounted for 37% of Q2 2026 revenue, up from 31% one year earlier”
Stock surges but valuation limited
Fastly stock jumped 21% to $28 on August 10, five days after earnings. The next-12-month price-to-sales multiple sits at 5.64x, above its recent mean but below April's 7.14x high. Street consensus suggests limited upside.
“The stock surged 21% to $28 on August 10, 2026”
The big picture
Fastly achieved sustainable profitability with record margins and strong revenue growth, but investors should watch whether the company can maintain cost discipline while scaling higher-margin security services.
