Read on Twitter
seems like a good day to do a thread on CDN / $FSLY:
$FSLY is a CDN infrastructure service, not SaaS and, to a lesser extent, sells value-added software
this is why their gross margin is similar to public cloud providers
$FSLY is a CDN infrastructure service, not SaaS and, to a lesser extent, sells value-added software
this is why their gross margin is similar to public cloud providers
a CDN (content delivery network) is the "network" layer of the traditional storage/network/compute pyramid that makes up a public cloud offering
CDNs put servers in major geos to make large files (e.g. video/photos) load faster, since it is placed closer to you
CDNs put servers in major geos to make large files (e.g. video/photos) load faster, since it is placed closer to you
$FSLY's pitch is: simple UX for developers which lets them build a CDN into an application with minimal code. they are riding the developer first, bottoms-up wave
this is similar to why developers love AWS (among the thousands of reasons)
this is similar to why developers love AWS (among the thousands of reasons)
on competition:
- public clouds bundle
- $LLNW competes on price
- $VZ and $AKAM are like $ORCL (secular share losers, but better run)
- $NET bundles CDN and sells software like DDoS protection and WAF
- as mentioned, $FSLY sells ease of use, a great point of differentiation
- public clouds bundle
- $LLNW competes on price
- $VZ and $AKAM are like $ORCL (secular share losers, but better run)
- $NET bundles CDN and sells software like DDoS protection and WAF
- as mentioned, $FSLY sells ease of use, a great point of differentiation
$NET (75%) and $FSLY's (60%) gross margins are very "different" due to how GAAP interprets their pricing models
$NET puts a lot of bandwidth costs in S&M because it's "free". $FSLY is in COGS.
reversing that, $NET is more like ~65%, higher because they sell more software
$NET puts a lot of bandwidth costs in S&M because it's "free". $FSLY is in COGS.
reversing that, $NET is more like ~65%, higher because they sell more software
given gross margin similarity, a reasonable question would be: why do you think $TWLO is a SaaS company and $FSLY isn't?
$TWLO's primary ROI for a customer is not performance, but time saved for the developer ($ saved) and headaches saved for operations from bundling telecom contracts
their gross margin is "low" due to telco pass-through costs. similar to Stripe and $V $MA interchange
their gross margin is "low" due to telco pass-through costs. similar to Stripe and $V $MA interchange
$FSLY is the opposite
the ease of use for developers is a marginal value-add which is useful in a sales process, but if their network is slower, missing key regions, or less effective than a competitor's, they're in trouble
the ease of use for developers is a marginal value-add which is useful in a sales process, but if their network is slower, missing key regions, or less effective than a competitor's, they're in trouble
selling a "commodity" application component as an API (SendGrid, $TWLO, etc.) is a much more scalable and less capital-intensive business than selling the vertically-integrated version
it is similar to Stripe vs. First Data: differentiation is software, not raw performance
it is similar to Stripe vs. First Data: differentiation is software, not raw performance
$FSLY is now a story stock on their "Edge Computing" narrative
but this is also not SaaS, it is the next-generation evolution of their service which may improve their gross margin over time
but this is also not SaaS, it is the next-generation evolution of their service which may improve their gross margin over time
to quote $MSFT, who claims to have first thought of edge computing in 2008, it is:
"[a way to place datacenters] closer to information-generation sources, to reduce network latency and bandwidth usage generally associated with cloud computing" https://www.microsoft.com/en-us/research/project/edge-computing/
"[a way to place datacenters] closer to information-generation sources, to reduce network latency and bandwidth usage generally associated with cloud computing" https://www.microsoft.com/en-us/research/project/edge-computing/
i.e. edge computing reduces the load on their CDN, which makes their product faster and cost less for them and (most likely) their customers
great benefits, but not a new product unless they are the only ones to offer it. that seems unlikely
great benefits, but not a new product unless they are the only ones to offer it. that seems unlikely
these misunderstandings (in my view) make $FSLY trade like a SaaS business (20x+ rev) though it is not one
I've avoided it due to the difference in opinion on business model, and as a result, valuation, but clearly it's been a great performer for a lot of HFs YTD
I've avoided it due to the difference in opinion on business model, and as a result, valuation, but clearly it's been a great performer for a lot of HFs YTD
