Fastly's Growth Engine Roars Back: Record Revenue, Soaring Margins, and the AI Edge
Q2 2026 delivered a 23% revenue surge, record gross and operating margins, and a fifth consecutive NRR improvement, as security and compute adoption accelerate alongside AI-driven traffic.
FSLY · Earnings Call · 2026-08-05
The Platform Strategy Pays Off
Fastly delivered a standout quarter in Q2 2026. Revenue reached a record $183 million, up 23% year over year, exceeding the high end of guidance by a wide margin. “Fastly delivered another exceptional quarter, demonstrating the success of our platform strategy efforts,” said CEO Charles Compton. The company’s flexible platform approach is driving deeper customer relationships and a more durable revenue model.
Our platform strategy is foundational to our success. We build, sell, and operate a single unified platform which means better consistency and performance for our customers. And a more efficient network for us to run. It also means that when customers face a new threat, or business opportunity, they do not need to bolt on another tool. Fastly enables them to solve their problems on 1 flexible platform.
Gross margin hit a record 65.8%, up 680 basis points year over year, and operating income reached $27 million with a record operating margin of 14.7%. CFO Richard Wong noted that “this reflects inherent operating leverage in our business model.” The company has now posted four consecutive quarters of operating profit, a clear inflection.
Security and Compute Lead the Charge
The growth engine is increasingly powered by security and compute. Security revenue grew 43% year over year to $41.7 million, now representing 23% of total revenue, up from 20% a year ago. DDoS protection and bot management grew at triple-digit rates. “The demand for edge threat defense intelligence, and governance is driving rapid adoption of our security products,” said Charles. Compute and other products grew 69%, driven by customer AI workloads.
This diversification is reflected in the improved agentic traffic dynamics. The company is also gaining share in network services, which grew 17% year over year, as customers standardize more of their stack on Fastly. As Richard highlighted in the prior quarter, the security momentum is broad-based: “Yes. Thanks. I think we -- I mentioned earlier, there was bookings linearity early in the quarter. And I think this one was a bookings linearity where we did see the benefit of security that end up benefiting all 3 months.” (from 2025-11-05, component 7372806039324214749)
AI: The Tailwind That Keeps on Giving
AI-driven traffic remains a structural tailwind. The company noted that AI traffic is growing at roughly 6.5 times the rate of human traffic. “In terms of agentic traffic, we do not necessarily break that out. However, we have seen signs of traffic driven by AI tool usage. Among some of our fastest growing accounts. And so we do believe that AI remains a tailwind for the business and is showing up most predominantly in security and compute, but also in network services,” said Charles in the Q&A. The company’s co innovation with customers is yielding products like the real-time AI-based pirate stream detection system built with LaLiga.
Richard added that “our customers are moving from reactive blocking to active governance,” citing examples like Le Monde and the Skyfire partnership. These initiatives are helping lift the combined security and other revenue to nearly $200 million annual run rate.
Financial Discipline and the Path Forward
The quarter showcased financial discipline. Gross margin expansion to 65.8% was driven by higher revenue relative to infrastructure costs and disciplined cost management. Gross margin rose 680 basis points year over year, reflecting the company’s structural efficiency gains and favorable mix shift toward security and compute. The company also raised its full-year 2026 revenue guidance to $732–746 million, reflecting 18% growth, and expects operating margin of 12% at the midpoint.
Free cash flow remained positive for the 6th consecutive quarter, despite front-loaded capital expenditures. The company continues to invest in its go-to-market transformation and APAC expansion, while maintaining a rational pricing environment. “We are in a very kind of rational pricing environment with really rational players, since the exits,” said Richard in the current call.
Risks and Remaining Concerns
Top-10 customer concentration increased to 37% of revenue, up from 34% in the prior quarter, raising concerns about dependence on large accounts. However, management believes this is a temporary effect of the strong performance of its largest customers. The company also faces price erosion in the mid-single digits, but this is stable and partly a function of volume discounts. As Richard noted in the prior quarter: “From a Q1 perspective, pricing environment was very similar to Q4... we did see a very similar mid-single digits in Q1.” (from 2026-05-06, component 7078486127943198035)
Investors will be watching for further progress at the upcoming Investor Day on September 22, where management is expected to provide more insight into product strategy and financial disclosures.