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    Akamai Technologies Inc (AKAM)

    Q3 2024 Summary

    Published Feb 7, 2025, 7:58 PM UTC
    Initial Price$90.17July 1, 2024
    Final Price$99.82October 1, 2024
    Price Change$9.65
    % Change+10.70%
    • Strong Growth in Compute Services: Akamai is experiencing substantial growth in its compute services, with a significant increase in customers across various verticals beyond its initial focus on media workflow. The company is on track to achieve a $100 million annual revenue run rate in enterprise compute by year-end.
    • Rapid Expansion of Security Offerings: Akamai's security products, particularly API Security and Guardicore, are showing impressive momentum. API Security is expected to reach an ARR of $50 million by year-end, up from near zero last year, indicating strong market demand.
    • Market Consolidation Benefits: The consolidation and shakeout in the delivery market are expected to benefit Akamai. The company's disciplined pricing strategy and market leadership position it to capitalize on market stabilization and potential business growth in the medium to long term.
    • Akamai's delivery solutions are facing macroeconomic headwinds, with slowed traffic growth in streaming and gaming verticals, which could impact overall revenue growth.
    • Despite strong performance in compute, Akamai has not yet achieved operating leverage in this segment, as they are still scaling up and haven't reached scale, potentially affecting profitability in the near term.
    • Increased investments in sales personnel and channels may lead to higher operating expenses before contributing meaningfully to revenue, putting pressure on margins.
    MetricYoY ChangeReason

    Total Revenue

    +4%

    Security and Compute segments drove revenue upward while Delivery declined. Market pressures, including customer cost optimization and macro headwinds, challenged growth, but robust demand for solutions like Guardicore helped offset these impacts.

    Security

    +14%

    Increased demand for Zero Trust, API security, and bot management solutions, along with acquisitions bolstered results. Continued market concern over advanced threats underpins strong future potential.

    Compute

    +28%

    Growth from new customer wins, expanding use cases (e.g., AI and media workflows), and partners delivering low-latency workloads all drove revenue. Investments in a distributed architecture support further expansion.

    Delivery

    -16%

    Economic and geopolitical uncertainties pressured traffic volumes, and a large social media client opted for do-it-yourself solutions. Pricing headwinds are expected to persist, though Akamai focuses on profitable workloads.

    U.S. Revenue

    +5%

    Gains in security and compute offerings outpaced slower delivery demand. Despite stiff competition, the U.S. market remains a core contributor to overall growth, reflecting strong sales execution and enterprise adoption.

    Operating Income

    -60%

    Higher cost of revenue, elevated R&D and amortization expenses, plus Delivery declines eroded margins. Continued focus on cost optimization and prioritizing profitable segments may stabilize operating income going forward.

    Net Income

    -64%

    Rising operating expenses, including intangible amortization, offset growth in security and compute. While interest income provided some relief, sustained cost management is critical to improve net profitability.

    EPS (Basic)

    -64%

    The sharp net income drop and higher expenses curbed EPS gains. Ongoing restructuring and targeted product investments could help restore EPS growth in future quarters if revenue momentum in security and compute continues.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue

    FY 2024

    $3.970B to $4.010B (4%-5% as reported, 5%-6% in cc)

    $3.966B to $3.991B (4%-5% as reported, ~5% in cc)

    lowered

    Foreign Exchange Impact

    FY 2024

    -$20 million

    -$22 million

    lowered

    Security Revenue Growth

    FY 2024

    15%-17% in cc

    15%-17% in cc

    no change

    Compute Revenue Growth

    FY 2024

    23%-25% in cc

    ~25% in cc

    raised

    Non-GAAP Operating Margin

    FY 2024

    ~29%

    ~29%

    no change

    Non-GAAP EPS

    FY 2024

    $6.34 to $6.47

    $6.31 to $6.38

    lowered

    Non-GAAP Tax Rate

    FY 2024

    ~19%-20%

    ~19%

    lowered

    Fully Diluted Share Count

    FY 2024

    ~154M

    ~154M

    no change

    CapEx

    FY 2024

    ~16% of total revenue

    ~17% of total revenue

    raised

    Revenue

    Q4 2024

    no prior guidance

    $995M to $1.020B (flat to up 3% in cc)

    no prior guidance

    Cash Gross Margins

    Q4 2024

    no prior guidance

    72%-73%

    no prior guidance

    Non-GAAP Operating Expenses

    Q4 2024

    no prior guidance

    $321M to $327M

    no prior guidance

    EBITDA Margin

    Q4 2024

    no prior guidance

    40%-41%

    no prior guidance

    Non-GAAP Depreciation Expense

    Q4 2024

    no prior guidance

    $131M to $133M

    no prior guidance

    Non-GAAP Operating Margin

    Q4 2024

    no prior guidance

    27%-28%

    no prior guidance

    CapEx

    Q4 2024

    no prior guidance

    $184M to $192M (18%-19% of revenue)

    no prior guidance

    Non-GAAP EPS

    Q4 2024

    no prior guidance

    $1.49 to $1.56

    no prior guidance

    Non-GAAP Tax Expense

    Q4 2024

    no prior guidance

    $54M to $57M

    no prior guidance

    Fully Diluted Share Count

    Q4 2024

    no prior guidance

    ~153M

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Revenue
    Q3 2024
    $988 million to $1.008 billion
    $1,004.679 million
    Met
    CapEx
    Q3 2024
    $166 million to $174 million
    $185.117 million
    Missed
    TopicPrevious MentionsCurrent PeriodTrend

    Growing the compute business

    Mentioned across all previous periods (Q2, Q1, Q4) with a consistent focus on growth, despite scaling costs.

    Still in the scaling phase, limiting profitability due to investments; once scale is reached, margins expected to expand.

    Consistent theme across all periods, highlighting investment phase and growth potential.

    Decline in the delivery segment

    Q2, Q1, and Q4 calls all cited slow traffic growth and pricing pressures, with double-digit YoY declines in delivery.

    Continued weakness with slow traffic growth and pricing pressures. Delivery revenue down 16% YoY in Q3.

    Ongoing challenge as pricing pressures and weak traffic growth persist.

    Emphasis on security offerings

    Q2, Q1, and Q4 calls consistently highlighted API security, Zero Trust, WAF, and DDoS solutions as key growth drivers.

    Security revenue run rate exceeds $2B; API Security, Guardicore, and DDoS cited as major drivers.

    Continued importance of security as a major revenue contributor and strategic priority.

    Ongoing concern about margins

    Reiterated in Q2 (compute is more capital-intensive, offset by delivery CapEx decline) , Q1 (colocation costs pressuring margins) , and Q4 (balancing growth investments with ~30% margin).

    Limited margin expansion due to scaling compute and investing in security; plan to reach ~30% operating margin near term.

    Consistent caution about near-term margin pressure, with optimism for future expansion.

    Internal workload migrations

    Q2 did not highlight new updates. Q1 mentioned being more than halfway complete with $100M+ savings. Q4 cited significant cost savings from migrating internal apps but no new major references.

    No mention of new internal migrations in Q3.

    Previously important, now not highlighted, indicating less recent focus.

    Gecko initiative

    Not mentioned in Q2 or Q1 [no references]. In Q4, described as a full-stack compute deployment across many locations, enabling workloads like AI inferencing.

    No mention of a Gecko initiative in Q3.

    New in Q4, absent in subsequent quarters, unclear current status.

    AI inferencing opportunities

    Mentioned in Q2 (smaller, more focused models for specific use cases) , Q1 (customers already using inference AI) , and Q4 (real-time personalization, data analytics).

    Q3 call discussed image generation, speech recognition, analytics on Akamai’s platform.

    Increasingly referenced: a growing use case for Akamai’s evolving compute platform.

    Advanced security packages

    No references in Q2, Q1, or Q4.

    High penetration now, with less upside for upselling due to maturity.

    Newly noted saturation, implying limited incremental upsell.

    Compute profitability

    Q2: Not explicitly noted as slower-than-expected, but recognized as capital-intensive. Q1: Build-out costs hamper margin expansion. Q4: Balancing growth investments with 30% margin.

    Strong revenue growth (28% YoY) but slower margin contribution; still investment phase.

    Evolving viewpoint: solid revenue gains but margin lag still emphasized.

    Transformative investments

    Q2 referenced two-thirds of revenue from compute+security; AI workloads growing. Q1 noted a fundamental shift to these segments. Q4 less explicit about AI but emphasized continued compute and security investment.

    Compute, security, AI seen as key to Akamai’s long-term evolution, with strong growth expected.

    Major strategic focus underpinning Akamai’s shift toward cloud and security leadership.

    1. Delivery Revenue Decline
      Q: Why is delivery revenue down over 20% despite traffic growth?
      A: Ed McGowan explained that although traffic is growing very slowly, in low single digits, delivery revenue is declining due to tough year-over-year comparisons from last year's acquisitions and modest price declines of 5–10%. This results in revenue contraction despite traffic growth.

    2. Compute Profitability
      Q: Why isn't compute outperformance leading to higher profitability?
      A: Ed McGowan noted that Akamai is still scaling up the compute business and hasn't reached scale yet. Consequently, despite strong revenue growth, they don't yet see significant operating leverage or margin expansion, which they expect to improve as the business grows.

    3. Competitor Bankruptcy Impact
      Q: How will competitor bankruptcies affect Akamai's business?
      A: F. Leighton stated that consolidation in the delivery market, including competitors entering Chapter 11, is long overdue. He believes this shakeout will stabilize the market, reduce unsustainable pricing practices, and benefit Akamai in the medium to long term.

    4. CapEx Trajectory
      Q: What is the outlook for CapEx through 2025?
      A: Ed McGowan indicated they aim to maintain CapEx at current levels over the next couple of years unless large deals necessitate additional investment. Large data center builds from prior years are not anticipated going forward.

    5. Go-to-Market Investments
      Q: Why is Akamai shifting investments in go-to-market strategies now?
      A: F. Leighton explained they're experiencing strong traction with products like Guardicore and API Security, expecting API Security ARR to reach $50 million by year-end, up from near zero last year. This success has prompted increased investment in sales hunters, specialists, and channel partners to capitalize on a broader enterprise market.

    6. Advanced Security Package Penetration
      Q: How penetrated is the advanced security package across the install base?
      A: Ed McGowan mentioned that penetration is high, especially with early adopters, and they are at the end of significant upsell opportunities. As a result, year-over-year comparisons now reflect sales in both periods, affecting growth rates.

    7. Security Performance ex-Guardicore
      Q: How did security products perform excluding Guardicore and Noname?
      A: Ed McGowan reported strong demand across all security products, including WAF and DDoS protection. DDoS saw acceleration due to increased attacks, leading to new customer sign-ups, though revenue from these will materialize over time.

    8. Use of GenAI in Security
      Q: How is GenAI impacting Akamai's security offerings?
      A: F. Leighton explained that Akamai has long used AI and ML in security products for anomaly and bot detection. They are now incorporating GenAI into two security products, enhancing customer management and visibility, while noting that attackers also use GenAI to create sophisticated malware, increasing the need for defenses like Guardicore.

    9. Lumen CDN Acquisition and AI Collaboration
      Q: Did Akamai acquire network elements with Lumen CDN, and are there AI collaborations?
      A: Ed McGowan clarified that no network assets were acquired from Lumen, only customer contracts, and he did not disclose any specifics about partnerships regarding AI traffic delivery with Lumen.

    10. Compute Use Cases and Verticals
      Q: What are the early compute use cases and verticals?
      A: F. Leighton highlighted strong adoption in media workflows but noted that compute sales span all verticals, including new customers. Use cases include database partners, observability, live encoding, AI inferencing, and more, indicating broad traction across various industries.

    11. CapEx Increase vs. Compute Guidance
      Q: Why is CapEx increasing without a significant raise in compute guidance?
      A: Ed McGowan stated that the CapEx increase is due to investments not only in compute but also in delivery where there is outsized demand, as well as infrastructure services. Timing differences between quarters also affect the numbers, and he cautioned against reading too much into it.