by Brenon Daly
Twenty years after the IPO of CDN giant Akamai, rival startup Fastly has announced its own plan to go public. We mention that at the open because one of the main selling points of Fastly’s pitch to Wall Street is setting itself apart from the competition. In its just-filed prospectus, Fastly uses the term ‘legacy CDNs’ more than 20 times.
The repetition isn’t meant to flatter. Eight-year-old Fastly discusses Akamai – and, to a lesser extent, Limelight Networks – in connection with the limitations of their offerings, which are meant to speed up and secure internet traffic.
Already having collected a rich, double-digit valuation in the private market, Fastly is making the economically rational effort to put some distance between itself and its discounted public-market comps. (Even with its shares near their highest level since the dot-com collapse, Akamai garners just 4.5x trailing sales, while Limelight lags far behind at not even 2x trailing sales.)
Like most other ‘new generation’ IT providers, Fastly plays up its growth rate while playing down the cost of that growth. Sales at the company rose about 40%, year over year, in 2018 to $145m. In comparison, Akamai is a single-digit percentage grower, although it is roughly 10 times larger than Fastly. Fastly also runs in the red, largely because its gross margins are just 54%, 10 percentage points lower than those at Akamai.
For us, though, the biggest difference between the two companies isn’t their technology or their business models or their target customers. Instead, it’s the IPO itself. It’s hard to imagine, but Akamai went public in 1999 on just $4m in sales and a staggering $58m loss. (It was a time of ‘irrational exuberance’ after all.) In other words, at the time of Akamai’s IPO, its entire business was smaller than the revenue that’s probably generated by a single key customer at Fastly.