Pomerantz Scores a Win for Fastly Investors
On September 24, 2025, Pomerantz won a victory for investors in Fastly, Inc. when Judge Tigar of the Northern District of California denied, in part, the defendants’ motion to dismiss securities claims against the company.
Fastly operates an edge cloud platform – a system that extends cloud computing services to the “edge” of a network, processing data closer to where it’s generated instead of sending it to a central data center – for processing, serving, and securing its customer’s applications. An edge cloud enables developers to build, secure, and deliver digital experiences. Fastly’s platform includes a Content Delivery Network (“CDN”), or a geographically distributed network of proxy servers and their data centers. Content owners, such as media companies and e-commerce vendors, pay CDN operators to deliver their content to their end users. In other words, Fastly’s customers are delivering web experiences, whether in the form of applications, websites, or streaming services.
The bulk of the company’s revenues are derived from use of its platform by its existing enterprise customers and its ten largest clients. Enterprise customers are those with annualized current quarter revenue in excess of $100,000 and include the company’s ten largest clients – referred to by a confidential witness as the “big whales” – among which are TikTok, Amazon Video, Apple, Twitter (X), Netflix, Paramount, and Disney. For the fiscal year ended December 31, 2023, roughly 95% of Fastly’s revenue was derived from its enterprise customers’ use of its platform, with new customers contributing less than 10%.
Thus, a decline in revenue from the company’s existing enterprise customers, especially the big whales, or a decline in retention of such customers, could create volatility in the company’s revenue and materially impact Fastly’s business.
During the class period, Fastly experienced a significant pullback from its customers due to various macroeconomic forces, such as rising interest rates, banking instability, and recession fears. As part of its investigation into securities claims against the company, Pomerantz spoke with several confidential witnesses who confirmed that, no later than 2023, customers had become increasingly price-conscious, were demanding aggressive price reductions in contract renewal negotiations, or were not renewing altogether. In addition, customers had begun allocating their business among several vendors instead of concentrating it all with Fastly. Sales personnel reported that they were regularly missing their sales quotas.
Significantly, Fastly’s former CEO, Todd Nightingale, acknowledged the customer pullback at an “all-hands” company meeting that occurred right before the first Class Period statement was made. [Nightingale resigned from Fastly on June 16, 2025, with his advisory role continuing until June 30, 2025. Charles ‘Kip’ Compton, previously Fastly’s Chief Product Officer, is the company’s new CEO.]
Pomerantz filed an amended complaint against Fastly and certain of its officers and directors, alleging that, despite being aware of this negative trend, when questioned at an earnings call in November 2023, Nightingale falsely denied seeing any macro-effect-driven slowdown in revenue growth from customers, stating that, “My competitors are seeing these effects, some slowing in growth, and we’re not seeing that.”
A few months later, during a February 2024 earnings call about Q4 2023 results, which reported Q4 2023 revenues on the lower end of expected guidance, Nightingale blamed the shortfall on “weaker than anticipated international traffic,” when in fact it resulted from the alleged general customer pullback. When pressed again on whether macro forces were negatively affecting the company, he again denied and downplayed any downturn. On that news, Fastly’s stock price fell 30.59%.
The amended complaint also alleges that the company’s 10-K failed to disclose the negative trend/uncertainty among Fastly’s customers, thereby violating Item 303, and that its risk disclosures were false and misleading because they only warned of the potential for harm to the business if customers did not continue to use and increase their usage of the platform, but left out material information about the current stagnation and decline in customer usage.
The court upheld all of the above statements on grounds of falsity and scienter. Judge Tigar ultimately dismissed all but one of the otherwise sufficiently alleged misstatements on loss causation grounds, finding that the alleged corrective disclosures were not corrective of the prior misstatements. However, he did not consider these statements under a materialization of the risk analysis. The court therefore granted plaintiffs leave to amend. Pomerantz is preparing a second amended complaint to further bolster its case for loss causation.