Fastly: A 20% Grower Priced Like A Mature CDN

Fastly trades at just 4.3x EV/NTM revenue despite 20% revenue growth, well below the 5.5-6.0x peer floor for comparable growth names. Net revenue retention accelerated from 100% to 113% over four consecutive quarters, while RPO rose 63% YoY and security revenue grew 47% YoY for the fourth straight quarter to 22% of revenue. The 9-point gross margin expansion since Q1 2025 reinforces improving fundamentals and supports a re-rating case.

Analysis

The setup is less about a re-rating on headline growth and more about durability of the growth mix. A security-led revenue stream with materially higher gross margin changes the quality of the model: it increases the odds that incremental sales fall through to EBITDA faster than the market is underwriting, which can force multiple expansion before revenue growth re-accelerates. If that margin bridge proves repeatable for another 2-3 quarters, the current discount to peers becomes mechanically harder to defend because the company will screen less like a low-quality infra name and more like a compounder with embedded cross-sell optionality.

Second-order, the biggest beneficiaries are not obvious cloud peers but adjacent security and edge vendors that can piggyback on a broader platform-buying cycle. When customers increase NRR and RPO at the same time, it usually implies budget consolidation rather than isolated product wins; that is dangerous for point solutions that still rely on land-and-expand. The likely loser is any vendor selling “best-of-breed” security add-ons into the same customer base, because procurement will increasingly justify bundling decisions around platform economics and margin efficiency.

The main risk is timing: the market can stay skeptical for months if the company has one quarter of decelerating new-logo adds or a guide that looks conservative on billings. The near-term catalyst path is dense: next 1-2 quarters of security mix stability and another uptick in NRR should force sell-side revisions, while any pause in RPO growth would undercut the bull case quickly. The contrarian miss is that this may still be under-owned because investors anchor on historical execution scars; if that scar tissue heals, the stock can re-rate sharply even without a huge change in top-line growth.

I would treat this as a quality-of-earnings rerating, not just a revenue story. That means the real upside comes from margin expansion plus multiple normalization, which can compound faster than expected if the market starts capitalizing the security segment separately. But if security growth slows before the rest of the platform matures, the multiple could compress back toward a low-confidence software name, so the position needs a clear catalyst horizon and discipline around entry.

Key Decisions for Investors

• Long FSLY for a 3-6 month catalyst window into the next earnings print; thesis is multiple normalization as security mix and margin expansion drive sell-side revisions. Target 20-30% upside if the market starts valuing it closer to 5.5x-6.0x EV/NTM revenue; stop/trim if security growth or NRR inflects down.
• Use call spreads in FSLY (3-6 months expiry) to express the rerating thesis with defined downside; prefer strikes that monetize a move to peer-floor valuation rather than a perfect operational quarter.
• Pair trade: long FSLY / short a lower-multiple software name with weaker retention and no margin inflection over the same horizon, to isolate quality-of-growth re-rating rather than sector beta.
• Add on any post-earnings pullback if RPO and NRR remain intact; the market is likely to overreact to any conservative guidance, creating a favorable entry point for a 6-12 month hold.
• Reduce or hedge if the next quarter shows security revenue growth decelerating below the mid-40s and gross margin fails to hold expansion; that would be the earliest signal the platform story is plateauing.