Fastly (FSLY) Q2 2026 earnings review
Transformation Validated: High Growth, Record Margins, Big Raise
Fastly delivered a phenomenal quarter, proving that its pivot from a commodity delivery network to a unified edge and security platform is succeeding. Revenue grew 23% YoY to $183.3 million, but the real story is profitability: non-GAAP operating income surged to a record $27.0 million (up from a loss of $4.6M a year ago). The momentum gave management the confidence to drastically raise full-year 2026 guidance. However, beneath the surface of this beat, rising customer concentration and heavy CapEx eating into free cash flow remain points for monitoring.
🐂 Bull Case
Security revenue grew an impressive 43% YoY, driving overall margin expansion. Customers are adopting Fastly's Next-Gen WAF, Bot Management, and DDoS tools, making the platform much stickier.
The company has effectively contained OPEX. While revenue grew 23%, total operating expenses (GAAP) only grew 10%, unlocking a massive swing to record non-GAAP operating income.
🐻 Bear Case
Despite a record $39.3M in operating cash flow, heavy infrastructure CapEx ($35.8M) squeezed Free Cash Flow to just $3.6M, a steep drop from $10.9M a year ago.
Fastly's top 10 customers now account for 37% of total revenue, up from 31% a year ago. If a single mega-customer churns or renegotiates pricing, the growth narrative could quickly unravel.
⚖️ Verdict: 🟢
Bullish. The pace of top-line acceleration paired with rapid operating margin expansion is exactly what investors want to see in a cloud edge provider. Fastly is successfully outgrowing its legacy CDN roots.
Key Themes
Security Continues to be the Primary Growth Engine
Accelerating. Security revenue hit $41.7 million, up 43% YoY, and now represents nearly 23% of total revenue (up from 20% a year ago). The ability to land customers with core delivery and subsequently upsell them into high-margin security tools (like Bot Management and Next-Gen WAF) is the fundamental driver of Fastly's margin expansion and revenue growth.
Sustained Resurgence in Net Retention
Accelerating. Fastly's Last 12-Month Net Retention Rate (LTM NRR) climbed to 117%, its highest level in over three years (up steadily from a low of 100% in 25Q1). This confirms that existing customers are increasing consumption and adopting multiple product modules. The 'land and expand' go-to-market strategy is executing flawlessly.
Compute and AI Workloads Surging
Accelerating. The 'Other' revenue segment, dominated by Fastly Compute, grew 69% YoY to $7.7M. The company's new C++ SDK targets low-latency AI and gaming workloads. With machine traffic reportedly growing 6.5x faster than human traffic, the edge compute platform is capturing high-value AI inference and routing workloads.
RPO Indicates Potential Future Growth Slowdown
Reversing. Remaining Performance Obligations (RPO) dropped sequentially from $368.7M in 26Q1 to $340.9M in 26Q2. While still up 38% YoY, this sequential drop contradicts management's prior narrative of consistently securing larger, longer-term upfront commitments. It raises a flag on whether Q1 pulled forward bookings or if enterprise deal momentum is pausing.
Customer Concentration is Re-Escalating
Decelerating diversity. The top 10 customers accounted for 37% of revenue in 26Q2, an increase from 34% in 26Q1 and 31% in 25Q2. This directly contradicts earlier claims of "broad-based" growth. While winning large deals is positive, tying nearly 40% of the top-line to just 10 accounts introduces immense pricing pressure risk and churn vulnerability.
CapEx Requirements Suppressing Free Cash Flow
Stable but heavy burden. Management previously warned that infrastructure CapEx would ramp to 10-12% of revenue in 2026 to preempt memory supply chain costs. We are seeing the impact now: Q2 Capital Expenditures hit $35.8M, dragging Free Cash Flow down to $3.6M (from $10.9M a year ago). Fastly is operating profitably on an income basis, but cash generation remains highly capital-intensive.
Partnering for the 'Agentic AI' Economy
Fastly announced a novel partnership with Skyfire to enable trusted commerce at the edge. The goal is to allow enterprises to securely identify and transact with autonomous AI agents in real-time. This is a crucial macro pivot: Fastly is positioning its edge platform not just for content delivery, but as the secure transaction layer for machine-to-machine AI traffic.
Other KPIs
Accelerating. Up significantly from 59.0% a year ago and 65.1% in the prior quarter. This reflects excellent platform leverage and a favorable mix-shift toward high-margin Security products, offsetting any mid-single-digit price erosion in core Network Services.
Reversing. The number of large customers (>$100K annualized) surprisingly dropped sequentially from 634 in 26Q1 to 624 in 26Q2. Despite the drop in count, Large Customer Revenue held steady at 94% of total revenue. This implies the company is effectively upselling existing giants (hence the NRR surge and concentration jump) but may be struggling to pull mid-market accounts over the $100K threshold this quarter.
Guidance
Accelerating. The midpoint of $739M represents a massive $21.5M upward revision from the prior guide of $710.0-$725.0M. This implies roughly 18.4% YoY growth for the full year, signaling extreme confidence from management in H2 pipeline conversion.
Accelerating. Upwardly revised from the previous $58.0-$68.0M range. This massive increase demonstrates that the incremental margins on Fastly's cross-sell deals are exceptional. The company is definitively exiting its cash-burning growth phase.
Stable to slightly decelerating. The midpoint of $187.0M implies about 18% YoY growth, a slight step down from the 23% YoY growth just achieved in Q2. Sequential growth implied is modest (roughly 2%), likely accounting for standard Q3 seasonality.
Key Questions
Customer Concentration Dynamics
Top 10 customer concentration spiked to 37% this quarter. Is this driven by a single hyperscaler aggressively adopting the platform, or broad-based volume growth among several top accounts? How are you insulating margins during these large-volume renewal negotiations?
RPO Sequential Decline
Remaining Performance Obligations dropped by nearly $28M sequentially. Was Q1 a specific anomaly for long-term renewals, or are enterprise customers becoming hesitant to sign multi-year commitments in the current macro environment?
Large Customer Churn
Large customer count fell by 10 accounts sequentially. Was this a result of active churn, or simply customers falling below the $100k annualized threshold due to seasonality or optimizations?