AKAM Q2 2025: Solid CIS pipeline backs 15% compute growth target
- Robust cloud infrastructure pipeline: Management highlighted large CIS contracts with minimum commitments and a healthy pipeline across verticals, indicating strong revenue visibility and further acceleration in compute services.
- Strength in security innovation: The Q&A underscored rapid growth in API security and micro segmentation solutions, driven by rising cyber threats and AI-related challenges, positioning AKAM for continued double-digit ARR growth in these segments.
- Delivery segment improvement post-acquisition: Discussions on Edgeo revealed that its integration is tracking as expected with improved traffic growth and pricing trends, bolstering the overall delivery business and enhancing competitive positioning.
- Uncertainty in Revenue Timing for CIS Contracts: Several Q&A responses highlighted that revenue recognition for large CIS deals is contingent on customer actions and timing, which may delay revenue accrual and risk missing growth targets.
- Ambiguity in Segment Contributions: Questions regarding the exact contribution from acquisitions like Edgeo and the impact of legacy compute revenue transfers indicate a lack of clear visibility, potentially masking underlying revenue weaknesses.
- Industry Headwinds in Delivery and Pricing: Despite recent sequential improvements, management acknowledged ongoing pricing pressures and competitive challenges in the delivery segment that could erode margins and hinder sustainable growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue ($USD) | Q3 2025 | no prior guidance | $1,035,000,000 to $1,050,000,000 | no prior guidance |
Cash Gross Margins (%) | Q3 2025 | no prior guidance | 72% to 73% | no prior guidance |
Non-GAAP Operating Expenses ($USD) | Q3 2025 | no prior guidance | $327,000,000 to $332,000,000 | no prior guidance |
EBITDA Margin (%) | Q3 2025 | no prior guidance | 41% | no prior guidance |
Non-GAAP Depreciation Expense ($USD) | Q3 2025 | no prior guidance | $139,000,000 to $141,000,000 | no prior guidance |
Non-GAAP Operating Margin (%) | Q3 2025 | no prior guidance | 28% | no prior guidance |
CapEx ($USD) | Q3 2025 | no prior guidance | $227,000,000 to $237,000,000 | no prior guidance |
Non-GAAP EPS ($USD) | Q3 2025 | no prior guidance | $1.62 to $1.66 | no prior guidance |
Assumed Taxes ($USD) | Q3 2025 | no prior guidance | $54,000,000 to $55,000,000 | no prior guidance |
Fully Diluted Share Count | Q3 2025 | no prior guidance | Approximately 145,000,000 shares | no prior guidance |
Revenue ($USD) | FY 2025 | no prior guidance | $4,135,000,000 to $4,205,000,000 | no prior guidance |
Non-GAAP Operating Margin (%) | FY 2025 | no prior guidance | 29% | no prior guidance |
CapEx (% of Revenue) | FY 2025 | no prior guidance | Approximately 20% | no prior guidance |
Non-GAAP EPS ($USD) | FY 2025 | no prior guidance | $6.60 to $6.80 | no prior guidance |
Non-GAAP Effective Tax Rate (%) | FY 2025 | no prior guidance | 19% | no prior guidance |
Fully Diluted Share Count | FY 2025 | no prior guidance | Approximately 147,000,000 shares | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Security Innovation | Discussed consistently in Q1 2025 , Q4 2024 and Q3 2024 with emphasis on API security, Guardicore and micro‐segmentation driving revenue and key wins. | Q2 2025 continues to emphasize robust growth in API security, Guardicore segmentation and micro‐segmentation with detailed revenue metrics and major contract wins. | Consistent growth with more mature revenue metrics and refined key win narratives. |
Cloud Infrastructure and Compute Services | Q1 2025 highlighted new cloud inference solutions, strong ARR growth projections and multiple customer deals. Q4 2024 emphasized strong ARR performance, large enterprise contracts and impressive revenue growth. Q3 2024 detailed broad customer wins and strategic partnerships. | Q2 2025 reported strong CIS revenue growth (30% YoY) and projected ARR growth of 40–45%, reinforcing large contracts and pipeline strength. | Accelerating growth with scaling emphasis and consistently strong performance across periods. |
Delivery Business Performance | Q1 2025 mentioned mixed pricing trends and cautious outlook with flat or low single‐digit growth. Q4 2024 described an 18% decline with expectations for stabilization and some rationalization in pricing. Q3 2024 discussed a 16% decline amid slow traffic growth but highlighted cross‐selling opportunities. | Q2 2025 noted improved traffic growth and a moderated rate of price declines, leading to sequential growth and an improving competitive environment. | Gradual stabilization and modest improvement in performance with a shift toward a healthier pricing landscape. |
Revenue Recognition Uncertainties and Timing Risks in Large Contracts | Not mentioned in Q1 2025 [N/A] and Q3 2024 [N/A]; Q4 2024 indirectly discussed revenue timing factors due to fewer days and currency impacts. | Q2 2025 explicitly highlighted timing risks in large contracts based on customer ramp‐up and capacity build requirements, detailing dependencies in revenue recognition. | Emergence of detailed discussion with a focus on revenue timing uncertainties that were largely absent or indirect in previous periods. |
Pricing Pressures and Margin Management Challenges | Q1 2025 discussed mixed pricing trends and margin pressures in delivery and commerce sectors. Q4 2024 noted a rationalizing pricing environment and targeted operating margins driven by a mix shift. Q3 2024 highlighted slow traffic growth and 5–10% price declines impacting margins. | Q2 2025 mentioned a moderated pricing environment with improved traffic growth that is beginning to offset pricing declines and support margin performance. | Gradual moderation in pricing pressures with indications of slight margin improvements amid a still competitive market. |
Channel Strategy and Sales Transformation | Q1 2025 emphasized channel partners’ role in driving new security customer acquisitions and cross‐selling efforts. Q4 2024 described channel-driven segmentation revenue and an ongoing sales transformation with increased “hunter” roles. Q3 2024 highlighted investments in go‐to‐market resources and channel-friendly new offerings. | Q2 2025 detailed further investments by increasing sales rep hunting capacity and expanding the channel organization to open new revenue opportunities. | Consistent emphasis on channels with incremental investments and strategic sales transformations across periods. |
Geopolitical and Diversification Concerns Affecting International Revenue | Q1 2025 noted customer concerns over reliance on US‐based services due to geopolitical tensions, yet international revenue grew steadily. Q4 2024 mentioned political challenges for a major customer and FX impacts. Q3 2024 made minimal reference, with only indirect context provided. | No mention of geopolitical or diversification concerns in Q2 2025. | Reduced focus in Q2, possibly due to resolved concerns or a strategic decision to de‐emphasize geopolitical risks. |
Integration Impacts of Recent Acquisitions (Edgeo/Edgio) | Q1 2025 reported that Edgio customer migration was completed, with upsell opportunities emerging. Q4 2024 highlighted that Edgio integration added new logos and contributed expected revenue with modest TSA costs. Q3 2024 did not mention such acquisitions. | Q2 2025 reported that integration of Edgeo traffic was completed and is tracking as expected, with no ongoing inorganic contributions and clear upsell benefits. | Successful and mature integration with consistent positive impacts, with earlier integration challenges now resolved. |
Increasing Operating Expenses Driven by Investments in Compute and Sales | Q1 2025 detailed investments in compute scale and sales transformation—including hiring specialists and shifting to “hunter” roles—with associated cost increases. Q4 2024 emphasized heavy investments in boosting compute capacity and expanding sales with evolving cost structures. Q3 2024 noted rising expenses offset partly by restructuring actions. | Q2 2025 highlighted continued investments in increasing sales capacity (hunting and channel expansion) and compute, leading to higher operating expenses and anticipation of lower H2 margins. | Ongoing investments with expected near-term margin dips, reinforcing a long-term growth strategy with managed cost increases. |
Decline of Traditional Media Workflow Focus in Favor of New Revenue Models | Q1 2025 mentioned exiting legacy revenue streams (video transcoding, image management) in favor of new compute-driven models. Q4 2024 described a shift from traditional media workflows to focus on fast-growing infrastructure services. Q3 2024, however, still highlighted media workflow as a “sweet spot” for compute revenue. | No mention of traditional media workflow focus in Q2 2025. | The absence in Q2 suggests that the transition away from legacy media workflows is largely complete, reinforcing a full shift toward new revenue models. |
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Compute Growth
Q: How did compute perform vs expectations?
A: Management explained that their cloud infrastructure services have exceeded expectations in the first half, with strong contract wins that underpin confidence in hitting roughly a 15% annual growth target, though timing of revenue recognition remains key. -
Security Demand
Q: What’s driving API and segmentation security?
A: They noted that demand for API security and micro segmentation is robust, with double-digit growth, as customers seek more agile and effective safeguards amid rising cybersecurity threats. -
Guidance Impact
Q: Is TikTok boosting overall guidance?
A: Management clarified that while domestic TikTok revenue of about $40M–$50M adds to the mix, the improved guidance largely reflects broad-based strength across revenue and margin metrics. -
CIS Pipeline
Q: How healthy is the CIS pipeline?
A: They highlighted a strong pipeline backed by sizeable contracts with minimum commitments and clear revenue ramps, though revenue timing depends on customer readiness. -
Delivery Trends
Q: Are delivery trends showing improvement?
A: Management observed that delivery benefits from a better pricing environment and healthier traffic growth—helped by reduced competition—which leads to more stable, improved performance compared to past challenges. -
CIS Contracts
Q: What is the structure of key CIS contracts?
A: They indicated that major CIS agreements include firm, minimum commitments with a stepped revenue ramp, reflecting strong customer confidence and significant future upside when fully recognized. -
Edgeo Performance
Q: How is Edgeo tracking against expectations?
A: Although isolating its exact impact is challenging, management noted Edgeo is performing at the upper end of its $85M–$105M range, affirming that the acquisition thesis is being met. -
Delivery Stability
Q: Are sequential delivery gains sustainable?
A: They attributed consistent sequential gains in delivery to improved traffic and pricing fundamentals, suggesting that recent trends signal a more stable market environment than in prior years. -
Legacy Impact
Q: What is legacy compute’s effect on growth?
A: Management mentioned that adjusting for legacy compute revenue transferred to partners makes a negligible difference, indicating that core growth remains intact.
Research analysts covering AKAMAI TECHNOLOGIES.