Fastly (NASDAQ: FSLY) did almost everything right in its third quarter. Revenue came in at $190.193 million, up 20% year-over-year, and beat the Street consensus of $187.801 million. Earnings per share hit 17 cents, comfortably above the 12 cents analysts were expecting. That's a double beat, the kind of thing that usually gets a stock a nice little pop.

Instead, shares are down 17.5% to $17.30 in after-hours trading Wednesday. The 52-week range is $7.87 to $34.82, so this is a stock that has seen both sides of the moon. Why the sour reaction? Let's walk through it.

The Numbers Were Genuinely Good

Revenue broke down like this: Network Services brought in $138 million, up 16% year-over-year. Security contributed $44.7 million, up 32%. And the "Other" bucket added $7.4 million, up 37%. Gross margins came in at 63.3% on a GAAP basis and 65.8% non-GAAP, both matching record levels. The last 12-month net retention rate was 119%, the highest since 2022. That means existing customers are spending more, not less.

"Our record third quarter results reflect strong execution as customers continued to adopt more of our products and deepen their use of our platform," CEO Kip Compton said in the release.

Remaining performance obligations ended the quarter at $334 million, up 24% year-over-year. That's the backlog of contracted future revenue, and it's growing nicely.

Guidance Was Raised, But Maybe Not Enough

For the fourth quarter, Fastly guided sales to $198 million to $202 million, versus a Street consensus of $196.89 million. Earnings guidance for Q4 is 16 to 18 cents per share, compared with an estimate of 13 cents. So the Q4 outlook is above consensus on both lines.

The company also raised its full-year sales guidance to $744 million to $748 million, up from a prior range of $732 million to $746 million. And full-year adjusted EPS guidance moved to 61 to 63 cents per share, from a previous range of 50 to 54 cents. That's a meaningful hike.

"Delivering record revenue and free cash flow demonstrates our value proposition as we help customers achieve critical business outcomes and build for AI scale," Compton added.

So why the sell-off? Two likely culprits. First, the company announced that Scott R. Lovett, president of Go To Market, plans to retire in 2027, and Fastly is now searching for a chief revenue officer. Management transitions always make investors nervous, even when they're orderly and well-telegraphed. Second, the guidance, while raised, may not have been as strong as the market had hoped given another blowout quarter. Fastly was recently mentioned as a possible winner from the growth of Meta's Muse AI platform, and these quarterly results may not yet show that benefit. When a stock gets priced for a narrative, a merely great quarter can feel like a disappointment.

Fastly shares are down 17.5% to $17.30 in after-hours trading Wednesday. The market is a forward-looking machine, and right now it's looking past the record margins and the raised guidance and focusing on what comes next.