Fastly Q2 2026 earnings: Revenue rises 23% as margins expand

Fastly (NASDAQ: FSLY) reported Q2 2026 revenue of $183.3 million, up 23% year over year, while its GAAP diluted loss per share narrowed to $0.10 from $0.26. Gross-margin expansion and faster growth in Security helped reduce the GAAP operating loss and move non-GAAP operating results into positive territory, although free cash flow declined.

Core earnings data

Revenue increased by $34.6 million, while cost of revenue remained nearly flat at $67.4 million. That combination lifted GAAP gross profit by approximately 43% and expanded GAAP gross margin by 8.8 percentage points.

GAAP operating expenses rose about 10%, but the increase was substantially smaller than the growth in gross profit. As a result, the GAAP operating loss narrowed, while non-GAAP operating income reached $27.0 million.

Business and segment performance

All three revenue categories grew, but Security and Other revenue expanded faster than Network Services. Network Services remained the largest business, representing approximately 73% of total quarterly revenue.

Customer expansion and contracted revenue indicators also improved. Last-12-month net retention rose to 117% from 113% in Q1 2026, reaching its highest level in more than three years. Remaining performance obligations increased 38% year over year to $341 million from $247 million.

However, revenue became more concentrated among Fastly’s largest customers. The top ten customers generated 37% of quarterly revenue, compared with 31% one year earlier.

Gross-margin expansion outpaced operating expense growth

The central earnings improvement came from the relationship between revenue and delivery costs. Revenue rose by $34.6 million, while cost of revenue decreased slightly from $67.6 million to $67.4 million. This lifted GAAP gross profit by $34.8 million and was the primary reason the operating loss narrowed despite higher operating expenses.

Total GAAP operating expenses increased to $130.4 million from $118.1 million. Research and development expense was nearly unchanged, while sales and marketing rose by $5.6 million and general and administrative expense increased by $7.3 million. Gross-profit growth was sufficient to absorb those increases, but not enough to produce GAAP operating income.

The difference between GAAP and non-GAAP profitability remained material. Fastly excluded $37.6 million of stock-based compensation and related payroll taxes, along with $1.7 million of capitalized stock-based compensation amortization and $2.2 million of acquired-intangible amortization, when reconciling its GAAP operating loss to non-GAAP operating income. Stock-based compensation expense alone was $35.2 million, up from $26.3 million a year earlier.

Higher operating cash flow did not translate into higher free cash flow

Operating cash flow increased by $13.5 million to $39.3 million, but free cash flow declined by $7.3 million to $3.6 million. Based on Fastly’s free-cash-flow definition, the difference implies approximately $35.7 million of capital spending and capitalized internal-use software adjustments, compared with roughly $14.9 million in the prior-year quarter.

Fastly therefore remained free-cash-flow positive, but the quarter’s stronger operating cash generation was largely absorbed by higher investment outflows.

Guidance

Management raised its full-year outlook, citing execution and momentum from Fastly’s platform strategy. The prior guidance ranges were not included in the supplied release, so the size of the increase cannot be quantified.

Fastly did not provide a forward-looking reconciliation of these non-GAAP measures to GAAP results, citing uncertainty around future expenses that could be material.

Recent insider transactions

The supplied insider-transaction summary shows three direct sales among the latest ten reported transactions, followed by seven direct stock grants to directors. The source did not specify a currency for the reported transaction values.

Separately, the six-month summary reports 2,210,659 shares across 18 purchases, but the supplied detailed records do not identify the individual transactions included in that total.

Risks investors need to watch

• Higher customer concentration: The top ten customers accounted for 37% of revenue, up from 31%. This increases the potential impact of spending changes or customer losses within that group.
• Continued GAAP losses: Fastly materially reduced its operating and net losses but remained unprofitable under GAAP. The positive non-GAAP result depended heavily on excluding stock-based compensation and related costs.
• Weaker free-cash-flow conversion: Operating cash flow improved, but free cash flow fell because of higher investment outflows. Continued spending at this level could limit cash retained by the business.
• Non-GAAP guidance: The operating-income and EPS outlook excludes expenses that Fastly said could be material to future GAAP results, limiting direct comparability with reported GAAP profitability.

Summary

Fastly’s Q2 2026 results showed better revenue economics: sales increased while cost of revenue remained nearly unchanged, driving substantial gross-margin expansion and sharply narrower GAAP losses. Security growth, higher net retention, and rising remaining performance obligations supported the operating improvement. The main points to monitor are whether Fastly can sustain its margin gains, convert more operating cash flow into free cash flow, reduce the gap between GAAP and non-GAAP results, and deliver its raised full-year outlook.