Fastly's IPO Demonstrates The Promising Future Of Cloud Services

About: Fastly, Inc. (FSLY)
by: Euan Jones

Fastly could garner $169 million from its IPO, and is likely valued at around $1.6 billion.

Fastly has been enjoying robust growth recently, and its focus on cloud services puts it in the midst of a growth-industry that’s presently thriving.

The company is still facing harsh competition from others who are notably larger than it, namely Akamai Technologies, though its impressive clientele could help it overcome the bigger fish.

Fastly Inc., a San Francisco-based company which bolsters the performance speed of websites for various businesses, has finally announced the terms of its planned initial public offering. The company intends to list on the New York Stock Exchange, and crucial details about its share pricing and future intentions have only recently been revealed to investors. With businesses everywhere focusing more on the digital operations, many view Fastly as a safe horse to bet on for the foreseeable future.

Fastly’s focus on cloud computing puts it in the middle of a high-growth industry, and details released in its S-1 filing show a promising future for the company.

Fastly wants to offer 11.3 million shares

According to a recent reveal, Fastly (NYSE: FSLY) intends to offer the public some 11.3 million shares at an estimated price range of $14 to $16 each. At that range, the dual listing of both Class A and B shares could garner Fastly as much as $169 million if everything goes off without a hitch. Fastly stands to have a bright future given the company’s focus on speeding up popular websites, and the robust growth it’s recently been enjoying should give investors confidence in its long-term future. By leveraging its existing list of big-name clients, which includes the New York Times website and that of Ticketmaster, Fastly will doubtlessly be able to convince other major websites in the efficacy of its services.

One of the best ways to understand Fastly is to picture it as an Infrastructure-as-a-Service (IaaS) cloud computing platform that makes the lives of businesses easier by supercharging their digital operations. Fastly wants to become the master at optimizing content delivery and cutting operational costs, which, translated from tech-jargon, means that the company can make your website run faster and help ensure that your digital operations don’t become too expensive. When readers suddenly flock to the New York Times in the midst of breaking news, for instance, the newspaper’s website still operates smoothly despite the traffic-increase thanks to Fastly’s services.

The IaaS industry will keep expanding as cloud services become a more common tool in the arsenal of most businesses. Fastly intends to leverage the proceeds of its IPO to bolster its business flexibility and gain additional access to capital markets, so investors should look to its forward-thinking IPO as a mere stepping stone towards greater financial freedom for the website-booster. Some of the company’s indebtedness will be paid off via the IPO proceeds, too, giving investors another reason to have confidence in its burgeoning growth.

According to Gartner, worldwide public cloud revenue is set to grow by 17.3 percent this year alone, so there are plenty of reasons to believe that Fastly is part of a rapidly-growing industry whose best days are still ahead of it. Before investors throw their financial heft behind Fastly on the basis of its industry performing well, though, they’ll want to take a look at how Fastly intends to grapple with competitors going forward.

Diving into Fastly’s S-1 filing

According to a prospectus filed with the SEC ahead of its market debut, Fastly isn’t yet profitable, but the company has demonstrated some impressive growth in recent years that could yet enamor enough investors to ensure its IPO is a thriving success. The company’s valuation could soar upwards to a colossal $1.6 billion, though last July it was valued at roughly $885 million in the midst of some Series F funding that garnered the company some $40 million in capital. This is fairly impressive when considering that Fastly didn’t pass $100 million in revenue until 2017.

That extra financial heft will go a long way towards supercharging Fastly’s future; the content delivery network that Fastly is forging will continue to ingrain itself into the operations of major websites, with the faster load times that Fastly offers being too good for businesses to pass up. It can only boost up the speed of websites with enough financial capital to keep expanding its cloud platform, however, so investors should be eager to see how Fastly leverages some of its proceeds to gain a leg up on the competition.

Fastly has been losing money, though it managed to slim its losses down by 10 percent from 2017 to 2018, seeing its net losses go from 31 percent of its net revenue to 21 percent. With the company’s dollar-based net expansion rate figure having grown by a whopping 132 percent in 2018, it stands to reason that Fastly will keep swelling in size following its debut.

Competition is heating up

Fastly is still much smaller than many of its major rivals, however, like the monstrously-large Akamai Technologies, which has a valuation of approximately $13 billion. Being a little fish has never stopped tech companies before, however, and Fastly has demonstrated that its ability to move data closer to end-users in an effort to speed up websites is popular with businesses. The company’s explanatory video which elucidates how its digital services bolster the websites of clients is worthy of a review by any investors interested in how it operates on a daily basis. This is how web operations of the future will be running, so Fastly’s expertise in this area is immensely promising for its future.

The global IaaS market shows little signs of slowing its growth anytime soon, with businesses everywhere finding themselves in need of cloud services offered by the likes of Fastly. The company will need to use some of its proceeds to convince investors that it can stand up to larger competitors like Akamai Technologies, though, which is the greatest hurdle it’s facing for its future. Nevertheless, Fastly’s impressive rate of expansion and the company’s forward-thinking focus on cloud-based services stands to propel it to a successful IPO.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.