AKAM Q1 2025: API Security ARR to Surge 30-35%, Security Rev +10%
- Robust API Security & Segmentation Growth: The executives highlighted strong momentum for their API security and Guardicore solutions—with ARR projected to grow 30%-35%, building a compelling base for overall security revenue growth around 10%—which underscores the company’s ability to capture market share in high-growth, high-margin areas.
- Effective Channel Strategy Driving New Logo Acquisition: With about 80%-90% of new customer acquisitions flowing through channel partnerships, Akamai’s expanded partner network (including firms like Presidio, WWT, and Accenture) supports sustainable sales growth, particularly in the fast-growing security segments.
- Stable Recurring Revenue Base with Attractive Unit Economics: The company’s security portfolio benefits from a highly recurring, subscription-based revenue model with strong stickiness and low churn, which provides predictable revenue streams and the potential to gradually expand margins over time.
- Flat Delivery Trend: Q&A indicated that delivery revenue has been flattish for three consecutive quarters despite some early signs of improvement, raising concerns about whether this trend can sustainably reverse.
- Incomplete Sales Transformation: Management acknowledged being only 1/3 of the way in shifting the sales team toward new customer acquisition, which could delay realizing full benefits from this structural change.
- Geopolitical and Diversification Concerns: Some international customers voiced worries about relying on U.S.-based services amid geopolitical uncertainties, suggesting potential risks in expanding internationally.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +2.9% (from USD 987M to USD 1,015M) | Total revenue increased modestly in Q1 2025 due to stronger contributions from the Security (+8.3%) and Compute (+14%) segments, which partially offset a 9% decline in Delivery revenue. This mix reflects both the momentum in growth solutions from previous periods and the ongoing challenges faced by the Delivery segment. |
Security Segment Revenue | +8.3% (from USD 491M to USD 531M) | Security revenue grew as key solutions such as segmentation and web application products continued to gain traction—a trend already evident in FY2024. The performance underlines continued market adoption and product innovation carried forward from the previous period. |
Compute Segment Revenue | +14% (from USD 144.5M to USD 165M) | Compute revenue improved significantly, driven by the enhanced adoption of cloud optimization and related compute products. Previous gains from initiatives like the Linode acquisition and pricing adjustments are manifested in the robust year-over-year improvement. |
Delivery Segment Revenue | –9% (from USD 351.8M to USD 319M) | Delivery revenue declined further as economic uncertainties and customer cost‐optimization strategies continued to depress traffic growth and renewal pricing—a challenge that began impacting FY2024 and persisted into Q1 2025. |
Net Cash Provided by Operating Activities | –28% (from USD 351,878K to USD 251,200K) | Operating cash flow decreased largely due to lower net income and adverse working capital changes. Increased non‐cash adjustments (like higher depreciation and stock-based compensation) combined with unfavorable shifts in accounts receivable, payable, and deferred income taxes compared to the previous period contributed to the decline. |
Cash and Cash Equivalents | +134% (more than doubled from USD 467,717K to USD 1,097,026K) | Cash balances surged as a result of strengthened liquidity management, likely driven by financing activities and a strategic conversion of marketable securities to cash—a marked shift from prior period practices. |
Current Marketable Securities | –over 80% (from USD 1,206,971K to USD 224,204K) | A drastic reduction in marketable securities indicates a major reallocation or liquidation, possibly to bolster cash reserves. This sharp move contrasts with previous period balances and suggests a strategic repositioning in response to market conditions. |
Total Current Liabilities | +149% (from USD 808,938K to USD 2,016,529K) | Current liabilities surged due to increased short-term obligations such as convertible senior notes, deferred revenue, and rising accounts payable. This substantial change reflects aggressive financing and operational commitments that expanded markedly from the previous period. |
Overall Stockholders’ Equity | –1% (essentially flat) | Equity remained stable as robust net income and additional capital inflows were nearly offset by significant stock repurchases and negative currency translation adjustments, mirroring the volatile yet balanced changes seen in the prior period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q1 2025 | no prior guidance | $1 billion to $1.02 billion, up 1% to 3% as reported or up 3% to 5% in constant currency | no prior guidance |
Cash Gross Margin | Q1 2025 | no prior guidance | Approximately 72% | no prior guidance |
Non-GAAP Operating Expenses | Q1 2025 | no prior guidance | $310 million to $316 million | no prior guidance |
EBITDA Margin | Q1 2025 | no prior guidance | Approximately 41% | no prior guidance |
Non-GAAP Depreciation Expense | Q1 2025 | no prior guidance | $132 million to $134 million | no prior guidance |
Non-GAAP Operating Margin | Q1 2025 | no prior guidance | Approximately 28% | no prior guidance |
Non-GAAP EPS | Q1 2025 | no prior guidance | Expected to be in the range of $1.54 to $1.59, down 6% to 3% as reported and down 2% to up 1% in constant currency | no prior guidance |
Taxes | Q1 2025 | no prior guidance | $57 million to $59 million based on an estimated quarterly non-GAAP tax rate of approximately 19.5% | no prior guidance |
Fully Diluted Share Count | Q1 2025 | no prior guidance | Approximately 152 million shares | no prior guidance |
CapEx | Q1 2025 | no prior guidance | Expected to be approximately $237 million to $245 million, representing approximately 24% of total revenue | no prior guidance |
Revenue | FY 2025 | no prior guidance | Expected to be $4 billion to $4.2 billion, flat to up 5% as reported and up 1% to 6% in constant currency | no prior guidance |
Security Revenue Growth | FY 2025 | no prior guidance | Expected to be approximately 10% in constant currency | no prior guidance |
Compute Revenue Growth | FY 2025 | no prior guidance | Expected to be approximately 15% in constant currency | no prior guidance |
Non-GAAP Operating Margin | FY 2025 | no prior guidance | Approximately 28% | no prior guidance |
Non-GAAP EPS | FY 2025 | no prior guidance | Expected to be in the range of $6 to $6.40 | no prior guidance |
CapEx | FY 2025 | no prior guidance | Expected to be approximately 19% of total revenue | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q1 2025 | Projected to be in the range of $1.0B to $1.02B | 1,015 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Security Solutions Expansion | Previous calls (Q2–Q4 2024) highlighted strong and growing traction in both API Security and Guardicore, with significant contract wins, ARR milestones, and strategic channel partnerships ( , , , ). | In Q1 2025, executives reaffirmed robust growth and high demand for API Security and Guardicore—with additional notable customer signings and continued focus on expanding channel partnerships ( , , ). | Consistent strong growth: The messaging remains positive with high demand, while the emphasis on strategic channels has been reinforced in Q1 2025. |
Compute & Cloud Infrastructure Growth | Across Q2–Q4 2024, there was a focus on strong revenue growth, enterprise compute expansion, and new customer wins, with discussion of ARR improvements, customer diversification, and strategic shifts from legacy streams ( , , , , ). | Q1 2025 reported a 14% year-over-year increase in compute revenue and emphasized a strategic focus on cloud infrastructure services—targeting legacy stream exits and enhancing margin potential ( , , ). | Continued robust growth: The narrative is positive with steady enterprise expansion and margin improvement, consistent with earlier periods. |
Delivery Business Performance Volatility | Discussions in Q2–Q4 2024 noted cyclical revenue declines, pricing pressures, and historical volatility—with some signals of stabilization through improved pricing and selective traffic acceptance ( , , , ). | Q1 2025 mentioned a 9% reported revenue decline along with emerging signs of improved traffic trends and cautious pricing stabilization, though executives remained careful with their outlook ( , , ). | Persistent volatility with cautious stabilization: The volatility continues but there are slight improvements; overall sentiment remains cautiously optimistic. |
Sales Transformation and Channel Strategy Evolution | Q3 and Q4 2024 calls focused on a multi-year transformation—with increased sales specialization, a shift toward new customer acquisition, enablement of channel partners, and optimization of the sales operating model ( , , , ). Q2 2024 did not address this topic. | In Q1 2025, progress on sales transformation was reiterated with continued efforts toward rebalancing the sales team, incentivizing longer-term contracts, and enhancing channel partnerships ( , , ). | Steady progress and deepening channel focus: The initiative remains a core strategic priority with measurable progress and positive long‑term outlook. |
Margin and Operating Efficiency Pressures | In Q2–Q4 2024, margins around 29–30% were discussed with investments in scaling (notably the compute business), increased CapEx, and operational cost pressures (e.g. higher depreciation and FX impacts) being highlighted ( , , , ). | Q1 2025 reported a Q1 non‑GAAP operating margin of 30%—above guidance—with forecasts for a Q2 drop to about 28% and full‑year pressures from increased expenses, while drivers for long‑term improvement (e.g. scale in compute and high‑margin security) were noted ( , , , ). | Short‑term pressure but long‑term optimism: Near‑term margin pressures persist, yet the strategy to scale and drive product mix improvements is expected to support future margin expansion. |
Geopolitical and International Diversification Concerns | Q2 and Q3 2024 calls noted geopolitical tensions as risk factors with potential impacts on business, while Q4 2024 mentioned geopolitical developments as a risk in forward‑looking statements ( , , , ). | In Q1 2025, executives addressed concerns by reassuring customers about U.S.-based service reliability and noting limited revenue exposure to U.S. public sector, emphasizing mitigation efforts ( , ). | Consistent risk acknowledgement with proactive reassurance: Geopolitical risks continue to be monitored, but proactive measures and reassurance appear to have mitigated the perceived impact. |
Large Customer Dependency and Revenue Concentration Risks | Q4 2024 provided specific details on risks from the largest customer’s DIY strategy and how long‑term commitments were mitigating a 1–2% revenue headwind; Q2 2024 touched on revenue diversification indirectly ( , ). | There is no mention of large customer dependency or revenue concentration risks during the Q1 2025 earnings call. | No current mention: This topic has dropped from Q1 2025 discussions, possibly indicating a reduced focus or mitigated risk perception. |
AI Upside Potential in Cloud Services | Earlier periods (Q2, Q3, Q4 2024) referenced AI primarily in the context of early-phase inferencing, generative AI initiatives, and initial integration within security products, with long‑term growth potential being acknowledged ( , , , , , ). | Q1 2025 marked a significant expansion with new product launches—including a cloud inference solution, Managed Container Service, VPUs for enhanced throughput, and a Firewall for AI—highlighting an ambitious ramp‑up in AI capabilities and a strong competitive narrative ( , , ). | Increased emphasis and product innovation: AI is emerging as a major growth driver with enhanced offerings and more robust product announcements than in earlier periods. |
Expansion into New Market Verticals and Observability Capabilities | Q2–Q4 2024 consistently included discussions on broadening market verticals—targeting media, retail, finance, etc.—and enhancing observability capabilities as critical parts of the compute services strategy ( , , , ). | In Q1 2025, there was no mention of expansion into new market verticals or observability capabilities. | Deprioritized in current period: The absence in Q1 2025 may indicate a strategic shift or deprioritization of this focus area compared to previous periods. |
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Margin Outlook
Q: Will margins stay high next quarter?
A: Management explained that sustaining higher margins depends on revenue upside and cost timing—short‑term dips in Q2 are possible but scale will drive long‑term improvement. -
Security Guidance
Q: Are you confident in 10% security growth?
A: They expressed confidence based on strong, high‑margin products like API security and Guardicore—with potential upside if growth outpaces guidance. -
Sales Transformation
Q: How effective are the sales changes so far?
A: Management noted they are about 1/3 of the way in shifting toward hunters and specialist hires, aiming for longer‑term contracts and improved market penetration. -
Delivery Drivers
Q: Was delivery upside driven by traffic or pricing?
A: They attributed delivery gains primarily to robust traffic growth across video, gaming, and downloads, with pricing playing a minor role. -
Channel Strategy
Q: What role do channel partners play in security?
A: Management emphasized that a significant portion of new security logos, especially in API security, comes via channel partners, highlighting their strategic importance. -
Security Differentiation
Q: What sets your segmentation solutions apart?
A: They stressed that scale, ease of use—with an AI‑enabled interface—and strong customer trust differentiate their segmentation and Zero Trust offerings. -
Compute Growth
Q: What’s driving compute revenue growth?
A: The key driver is rapidly expanding cloud infrastructure services, growing at 40–45% ARR, which offsets declines in legacy segments. -
Security Performance
Q: Did security revenue meet expectations?
A: Management confirmed that security delivered 10% constant‑currency growth, aligning with their forecasts despite license revenue variations. -
AI Firewall
Q: How does the new AI firewall add value?
A: It’s designed to protect agentic AI and related applications, addressing emerging threats and gaining strong customer interest. -
Sales Metrics
Q: When will hunter strategy metrics appear?
A: They expect the enhanced sales focus to eventually translate into stronger revenue growth, with detailed metrics to be disclosed later. -
Delivery Pricing
Q: Are delivery pricing renewals improving post-restructuring?
A: Management observed mixed pricing trends; while some large media customers show moderated price declines, overall unit pricing remains influenced by volume dynamics. -
Compute Legacy Impact
Q: How are legacy compute streams performing?
A: Legacy compute revenue is declining as anticipated, with management transitioning focus to higher‐growth cloud infrastructure services. -
Channel for Legacy Security
Q: Can channels support slower‑growing security segments?
A: They noted that channel partners are also helping to sell mature security offerings, integrating them with newer, higher‑growth products. -
International Reliability
Q: Can non‑U.S. customers rely on your services?
A: Management reassured that despite geopolitical concerns, U.S.-based services remain highly trusted globally with few comparable alternatives. -
Security Organic Growth
Q: Has organic security growth slowed?
A: They admitted that traditional security segments are growing at lower rates, but this is balanced by rapid gains from new product lines. -
Compute Quantification
Q: How does compute growth compare without legacy revenue?
A: Management clarified that while legacy compute slowed as expected, the surge in cloud infrastructure services more than compensates for the decline. -
Edgio Cross-Sell
Q: What is the potential for Edgio cross‑sell?
A: There’s a clear opportunity to upsell security and compute services into the new Edgio customer base over the next 6–9 months. -
Security Revenue Mix
Q: Is security growth driven by new versus expansion?
A: The revenue mix is balanced—with new product introductions gradually ramping and existing customer expansions continuing as expected.
Research analysts covering AKAMAI TECHNOLOGIES.