Fastly Posts Record Margins as Revenue Growth Hits 23%
The edge-computing company grew revenue 23% to $183.3 million in the second quarter, its fastest pace in over a year, while gross margins set records for a third straight quarter.
Fastly (FSLY) reported second-quarter revenue of $183.3 million, up 23% from a year earlier, as the edge-computing and security company posted record gross margins for a third consecutive quarter. GAAP gross margin reached 63.3%, up from 62.5% in the first quarter and 61.4% in the fourth quarter of 2024, while non-GAAP gross margin hit 65.8%.
The growth rate marked an acceleration from 20% in the first quarter and matched the 23% pace set in the fourth quarter of 2024, breaking a stretch of slowing growth. Net retention climbed alongside it: the trailing-twelve-month rate rose to 117%, its highest level in more than three years and the fifth straight quarterly improvement, from 113% in the first quarter and 110% in the fourth.
That momentum came with a caveat. Remaining performance obligations fell to $340.9 million from a record $368.7 million in the first quarter, a roughly 7.5% sequential drop that ended two straight quarters of record RPO prints, even as the metric was still up 38% from a year earlier. Fastly's top ten customers accounted for 37% of revenue, up from 34% in each of the prior two quarters, and the company's large-customer count slipped to 624 from 634, its first sequential decline after steadily rising from 576 in the third quarter of 2024.
Security remained the fastest-growing segment, with revenue up 43% year-over-year to $41.7 million, though that trailed the 47% growth rate posted in the first quarter. Network Services, the company's largest segment, reaccelerated to 17% growth and $133.9 million from 11% growth and $126.2 million in the first quarter. The smaller Other category, which includes compute and observability products, grew 69% year-over-year, its fastest rate yet, even as the segment's revenue slipped to $7.7 million from $8.0 million in the first quarter.
Profitability improved across both GAAP and non-GAAP measures. The GAAP operating loss narrowed to $14.4 million from $23.9 million in the first quarter, while non-GAAP operating income rose to $27.0 million from $19.1 million. GAAP net loss narrowed to $15.6 million from $20.5 million, and non-GAAP net income rose to $26.2 million from $22.9 million. Fastly began excluding stock-based compensation-related payroll taxes from its non-GAAP figures starting this year, a methodology change applied without recasting prior periods.
Fastly raised its full-year 2025 guidance alongside the results, now projecting revenue of $732.0 million to $746.0 million and non-GAAP operating income of $88.0 million to $96.0 million, extending the pattern of upward revisions set with its first-quarter guide.
Operating cash flow rose to $39.3 million from $28.9 million in the first quarter, its third consecutive sequential gain. Free cash flow fell to $3.6 million from $4.1 million as capital expenditures more than doubled from a year earlier to $31.6 million. Cash and cash equivalents dropped to $89.8 million as of June 30 from $180.6 million at year-end, after Fastly repaid $38.6 million of convertible senior notes and shifted more of its balance sheet into marketable securities, which rose to $247.7 million from $181.2 million.