FSLY, Fastly Inc.

Will it survive?

• Can it pay its interest? -9.4×
  Does not cover its interest
  Operating income ($119M) ÷ interest expense $13M
  What this means

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt, net of cash? $80K
  Net debt against an operating loss
  Cash $181M + ST investments $181M − debt $362M
  What this means

  Netting $362M of cash and short-term investments against $362M of debt leaves $80K owed, with no operating profit this year to measure it against — understand that combination before anything else about the company. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? 45d
  Tight
  DSO 69 + DIO 0 − DPO 24 days
  What this means

  Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)

Is it a good business?

• Return on invested capital -13%
  Below average through the cycle
  7-yr median, range -14%–-8%; -8% latest = NOPAT ($94M) ÷ invested capital $1.1B
  Industry peers: median -6%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 7 years (it ran -8% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 11%
  Positive this year, negative across the cycle
  latest $66M = operating cash $94M − maintenance capex $29M (positive this year), after an earlier loss stretch (9-yr median -21%)
  Industry peers: median 7%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 11% of revenue this year, a -21% median across 9 years. Treating stock comp as the real expense it is (less $117M of SBC) leaves ($52M).

• Are earnings backed by cash? $94M
  Loss, but cash-generative
  Net income ($122M) · cash from operations $94M
  What this means

  The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.

How is the cash used?

• Where do the earnings go? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

• Investing or harvesting? 0.47×
  Harvesting
  Capex $29M ÷ property depreciation $61M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• How much of next year is already sold? 40%
  A meaningful head start
  Contracted and not yet earned $354M, of which the filing expects 70% within twelve months = $248M against revenue of $624M
  Retention and the customer ladder, in the filing’s words

  Customer count3,092

  “As of December 31, 2025 and 2024, we had 3,092 and 3,061 customers, respectively.”

  What this means

  Remaining performance obligations are revenue the customer has committed to and the company has not yet earned — the nearest thing a software business has to an insurer's float. The headline total is a duration figure and can mislead badly on its own, because a contract signed for seven years counts the same as one signed for one. What matters is the part the filing itself expects to recognise within twelve months, shown here against a year of revenue. Where a company does not tag that band, both figures are withheld rather than shown half-told.

• What does winning a customer cost? 32%
  Heavy selling cost
  Selling and marketing $201M ÷ revenue $624M
  What this means

  Sales and marketing as a share of revenue, kept apart from administrative overhead because it answers a different question: how much a business must spend to win the next customer. A company whose product pulls customers in spends little here and keeps the difference; one that must buy its growth is running to stand still, and the spending has to keep rising for revenue to keep rising. Read it beside the growth rate, not alone.

• Is the buyback buying ownership, or mopping up? 18.8%
  The count is rising
  Stock compensation $117M (fiscal 2025), 18.8% of revenue · no repurchases · diluted shares +20.7% since 2022
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 1 of 4 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Miss
  Revenue ≥ $2B · $624M
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Pass
  Current ratio ≥ 2× · 2.61×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Near
  Debt ≤ working capital · $362M vs $313M WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Miss
  A profit every year (9-yr record) · 9 loss years
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record —
  Uninterrupted dividends · no dividend line tagged in the data
  What this means

  An unbroken dividend was Graham's mark of durability. This record carries no dividends-paid line in any year — common for partnerships, whose distributions file under tags the chain doesn't read — so the criterion is withheld rather than judged on silence.

• Earnings growth —
  Earnings +33% over the record · —
  What this means

  Earnings were negative early in the record, a growth rate isn't meaningful.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $-0.86/share (latest year $-0.76), the averaged base the calculator's gate runs on, and book value is $5.84/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2017–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 0 of 9
  What this means

  Lost money in 9 year(s), look at what happened there before trusting the average.

• Return on capital ≥ 15% 0 of 7 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin −24% → −30% (3-yr avg ends)

  In the filing’s words The filing attributes gains to higher prices, but the margin in the record has not followed — the claim outruns the result here.

  What this means

  The recent-years average (−30%) sits below the early years (−24%), but the latest year (−19%) is back near the early level: a cyclical trough dragging the window down, not a one-way slide. The through-cycle median is −31% — read it across the cycle, not on the dip.

• Reinvestment, incremental ROIC returns capital
  What this means

  The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.

• Worst year 2021 · −61.8% op. margin
  What this means

  Operations went underwater in 2021, understand why before trusting the good years.

• How management talks about it Promotional
  What this means

  Results have held roughly flat while the filing leans on a promoter’s vocabulary — watch whether the words are doing work the numbers are not.