Cloudflare vs Fastly
Cloudflare summary:
Cloudflare is rated a strong-buy. They are becoming the premier platform for Cybersecurity, web performance, network reliability and a host of multiple offerings. The launch of their integrated product suite and marketing into larger enterprise will continue to be a major strength. Their expansion into large TAM' areas of cybersecurity as well as upscaling products that meet various verticals in cybersecurity provides future runway for growth.
Cloudflare has a more advanced software defined architecture that allows for maximum virtualization and flexibility to organically build products. With higher revenue growth rate, higher gross, higher operating margins, generating more free cash flow from operations and rapid product innovation from a culture-perspective, it is clear to see why the market gives it a premium valuation. However, the company faces intense competition (from Okta, Z-Scaler) as they venture into new areas of Cybersecurity and they need to keep justifying their valuation.
Fastly Summary:
Fastly is rated a moderate buy - because the story is not over and the steep drop in valuation. Fastly is still the go-to-platform for the world's digital media brands like Stripe, Pinterest, Shopify etc. They are currently the fastest CDN provider both on the Edge and amongst Cloud providers. The company arguably has the best technology based on their CDN web assembly and Lucet architecture. They also hold an advanced, next-generation WAF security product with Signal Sciences for application-level and server security. I'll caution investors that the company faces more risks. Customer Retention metrics are dropping fast, and the product stickiness is decelerating. The pace of major new clients added in the recent quarter needs to sustained.
They also have a much slower product innovation. They need to fix the management team issues and recruit a solid CRO & CFO. Fastly has more work to do to convince Wall Street.
I retain a moderate buy because of its valuation drop relative to its technology capabilities and growth profile. Also, Fastly should continue to benefit from tailwinds as edge compute grows over 30% over the next couple of years. As the CEO said: "2021 is a year where we will be getting the marquee examples and cases out there, and 2022 is when this will have a meaningful impact on revenue. And nothing's changed from my perspective."
Investors may decide if they want to continue to stick to Cloudflare as the winner. Some investors may want to take a bet on Fastly's CEO's words and bet that the company could transform its growth profile again. We will see, as a research analyst, I will be observing and analyzing both companies to see how the story turns out. My goal was to provide all the data and let investors make their decision. There is still so much to write about both companies that I missed out, so I will take any questions in the comments. Thank you so much for your patience in reading through this analysis.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
