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AKAMAI TECHNOLOGIES INC (AKAM)·Q4 2024 Earnings Summary

Executive Summary

  • Revenue grew 3% year over year to $1.020B with Security (+14%) and Compute (+24%) offsetting a Delivery decline (-18%); non-GAAP EPS was $1.66, above the company’s Q4 guidance range, driven by slightly higher revenue and lower costs .
  • Mix continues to improve: Security and Compute were 69% of Q4 revenue (vs. 68% in Q3 and 66% in Q2), supporting structurally higher profitability despite FX headwinds and Delivery pressure .
  • 2025 outlook: Q1 revenue $1.00–$1.02B and non-GAAP EPS $1.54–$1.59; FY25 revenue $4.0–$4.2B and non-GAAP EPS $6.00–$6.40; non-GAAP operating margin ~28% with capex front‑loaded (Q1 ~24% of revenue) .
  • Strategic catalyst: multi‑year $100M+ cloud commitment from a top global technology platform; workloads expected to ramp late 2025, supporting Cloud Infrastructure Services ARR growth of 40–45% in 2025 and Delivery stabilization (~10% decline) .
  • Risks: Delivery still -18% YoY in Q4, 2025 Compute growth guided to 15% given ISV transitions and legacy storage wind‑down, FX headwinds ($18M revenue, ~30 bps margin, ~$0.09 EPS since November), and multi‑year headwind from the largest customer’s DIY strategy (mitigated by minimum commitments) .

What Went Well and What Went Wrong

What Went Well

  • Security momentum: Security revenue up 14% YoY in Q4 to $535M; Guardicore segmentation ARR reached $190M (+31% YoY) and API Security ARR $57M (from ~$1M in 2023), with combined $247M ARR and a 2025 growth target of +30–35% .
  • Compute traction and landmark deal: Compute revenue up 24% YoY to $167M; announced multi‑year $100M+ cloud commitment with a large tech platform, expected to ramp end‑2025; cloud infra services ARR $259M (+35% YoY), targeting +40–45% in 2025 .
  • Profitability above guide: Non‑GAAP EPS $1.66 exceeded the high end of guidance, helped by slightly higher revenue, lower Edgio transition costs, savings from headcount actions, and hiring pushed into Q1 .
  • Management tone/confidence: CEO highlighted “solid fourth quarter” and “sustained momentum” in security and cloud; reiterated pathway to double‑digit revenue growth and 30%+ operating margins by decade’s end .

What Went Wrong

  • Delivery headwinds: Delivery revenue down 18% YoY in Q4; though trends are improving, management still expects ~10% decline in 2025 before further stabilization .
  • GAAP margin compression: GAAP operating margin fell to 15% (down 4 pts YoY) and GAAP EPS declined 12% YoY to $0.91, impacted by restructuring and amortization costs .
  • FX and customer concentration: FX reduced 2025 expectations by ~$18M revenue, ~30 bps operating margin, and ~$0.09 EPS since early November; largest customer’s DIY plan expected to be a 1–2% annual revenue headwind for a couple of years (mitigated by minimum spend commitments) .

Financial Results

Consolidated results (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($M)$979.6 $1,004.7 $1,019.9
GAAP EPS ($)$0.86 $0.38 $0.91
Non‑GAAP EPS ($)$1.58 $1.59 $1.66
Non‑GAAP Operating Margin (%)29% 29% 29%
Adjusted EBITDA ($M)$409.0 $426.3 $429.4
Cash from Operations ($M)$431 $393 $344
Capex as % of Revenue16% 16% 19%
Consensus Revenue (S&P Global)N/A*N/A*N/A*
Consensus EPS (S&P Global)N/A*N/A*N/A*

*Estimates unavailable via S&P Global at the time of request.

Segment and geography mix (oldest → newest)

Metric ($M)Q2 2024Q3 2024Q4 2024
Security Revenue$498.7 $518.7 $534.6
Delivery Revenue$329.4 $319.1 $317.8
Compute Revenue$151.5 $166.9 $167.5
U.S. Revenue$508.7 $524.6 $529.9
International Revenue$470.9 $480.1 $490.1
Security+Compute Share of Revenue66% 68% 69%

Q4 2024 vs prior year and guidance

MetricQ4 2023Q4 2024 ActualQ4 2024 Company Guidance
Revenue ($M)$995.0 $1,019.9 $995–$1,020
GAAP EPS ($)$1.03 $0.91 N/A
Non‑GAAP EPS ($)$1.69 $1.66 $1.49–$1.56
Non‑GAAP Operating Margin (%)30% 29% 27–28%

Narrative checks:

  • Revenue +3% YoY (fits press release) and at high end of guide .
  • Non‑GAAP EPS above guidance range .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2024$995–$1,020 $1,019.9 (Actual) At high end
Non‑GAAP EPS ($)Q4 2024$1.49–$1.56 $1.66 (Actual) Beat
Non‑GAAP Op Margin (%)Q4 202427–28% 29% (Actual) Beat
Revenue ($M)Q1 2025N/A$1,000–$1,020 New guide
Non‑GAAP EPS ($)Q1 2025N/A$1.54–$1.59 New guide
Non‑GAAP Op Margin (%)Q1 2025N/A~28% New guide
Capex as % of RevenueQ1 2025N/A~24% New guide
Revenue ($B)FY 2025N/A$4.0–$4.2 New guide
Non‑GAAP EPS ($)FY 2025N/A$6.00–$6.40 New guide
Non‑GAAP Op Margin (%)FY 2025N/A~28% New guide
Capex as % of RevenueFY 2025N/A~19% New guide
Non‑GAAP Tax RateFY 2025N/A~19.5% New guide
Shares for EPS (M)FY 2025N/A~152 New guide

Management added color: Q1 revenue seasonally lower than Q4 due to lower revenue from the largest customer, FX, fewer calendar days, less one‑time license, and year‑end contract renewals; Q1 capex is front‑loaded (tariff risk mitigation) .

Earnings Call Themes & Trends

TopicQ2 2024 MentionsQ3 2024 MentionsQ4 2024 (Current)Trend
Security growthSecurity +15% YoY; non‑GAAP op margin 29% Security +14% YoY; restructuring charge impacted GAAP; op margin 29% Security +14% YoY; $12M one‑time license; Zero Trust + API Security strong Healthy; diversified to newer products
Compute trajectoryCompute +23% YoY; mix rising Compute +28% YoY Compute +24% YoY; FY25 compute growth guided ~15% given ISV shifts; CIS ARR +35% with 40–45% target Near‑term decel, infra ARR accelerating
Delivery marketDelivery -13% YoY Delivery -16% YoY; pricing pressure persists Delivery -18% YoY; signs of stabilization; 2025 decline ~10% expected Improving from worse comps
Largest customer—DIY headwind discussed in prior callsDIY to be 1–2% growth headwind; 5‑yr committed min spend reduces exposure; potential U.S. ban scenario quantified Managed risk; structured commitments
FX/macro——FX shaved ~$18M revenue, ~30 bps op margin, ~$0.09 EPS since Nov; elevated 2025 FX volatility External drag
Capex & tariffs16% capex as % revenue 16% capex as % revenue Q1 2025 capex ~24% (front‑loaded) to support Edgio traffic, geo buildouts and tariff mitigation; FY25 ~19% Higher near‑term investment
AI/inference——Early traction in AI inferencing workloads; not a big 2025 revenue driver yet Long‑term upside

Management Commentary

  • Strategy: “Our focus on delivering sustainable profitability across all areas of our business, coupled with our ongoing transformation into a leading cybersecurity and cloud solutions provider, positions us for long‑term success.” — CEO Tom Leighton .
  • Security & Compute momentum: “Security delivered the majority of our annual revenue in 2024… cloud computing… recorded $630 million… growing 25% over 2023… We exceeded all our year-end ARR goals for Guardicore, API Security and enterprise cloud infrastructure services.” — CEO .
  • Landmark cloud deal: “We announced our first customer to sign a contract committing to spend more than $100 million for our cloud infrastructure services over the next several years… workloads will begin ramping up by the end of 2025.” — CEO/CFO ; corroborating PR .
  • Profit drivers in Q4: “EPS results exceeded our guidance driven primarily by slightly higher‑than‑expected revenue, lower‑than‑expected TSA costs related to the Edgio transaction, greater savings from headcount actions… and lower payroll costs due to some hiring pushing from Q4 into Q1.” — CFO .
  • Delivery outlook: “We’re beginning to see signs of improvement in the delivery marketplace… we now expect to see the year‑over‑year decline in delivery revenue shrink to about 10% this year.” — CEO .

Q&A Highlights

  • The $100M cloud commitment is with AKAM’s largest customer; chosen for performance, pricing, and European footprint; includes a Scandinavia data center build; ramp expected by end‑2025 .
  • Compute growth deceleration in 2025 reflects migration of certain application workloads to ISV partners and wind‑down of legacy net storage; cloud infrastructure services ARR is the focus and target growth driver (+40–45%) .
  • Delivery pricing environment showing rationalization and longer terms; fewer players post Edgio asset acquisition could help moderate declines .
  • Go‑to‑market transformation is a multi‑year effort with more hunters and specialist overlays; management aims to minimize account “breakage” and leverage partners like Deloitte .
  • FX volatility and potential tariffs are monitored; capex pulled forward by ~$10–15M in Q1 to mitigate tariff risk; pricing strategy updates under review .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 revenue and EPS was unavailable at the time of this analysis; comparison to consensus cannot be provided.*
  • Company performance vs guidance: Revenue landed at the high end of guidance ($1.020B actual vs $995–$1,020M guided) and non‑GAAP EPS beat the range ($1.66 vs $1.49–$1.56), with non‑GAAP operating margin at 29% vs 27–28% guided .

*Estimates unavailable via S&P Global at the time of request.

Key Takeaways for Investors

  • Mix shift is working: Security and Compute at 69% of Q4 revenue underpin resilient 29% non‑GAAP operating margin and moderate Adjusted EBITDA growth despite Delivery headwinds .
  • 2025 set‑up is balanced: Security growth ~10% (cc), Compute ~15% (near‑term ISV transition drag), Delivery decline moderating to ~10%, with FX a meaningful swing factor (–$38M assumed in FY25) .
  • Strategic cloud agreement is a medium‑term catalyst: $100M+ multi‑year commitment (ramp late 2025) validates enterprise‑grade cloud offering and supports reacceleration targets in 2026+ .
  • Capital intensity front‑loaded in Q1 (24% of revenue) to support Edgio traffic, geo builds, and tariff risk; FY25 capex ~19% of revenue, sustaining growth in cloud and network .
  • Largest customer risk is managed with a 5‑year minimum‑spend pact; expect 1–2% annual growth headwind near term, with potential U.S. ban scenario quantified and embedded in ranges .
  • Near‑term trading: Positive skew from EPS beat vs guide and $100M cloud announcement; counterbalanced by 2025 Compute growth decel, heavier Q1 capex, and FX headwinds .
  • Medium‑term thesis: Double‑digit top‑line growth and 30%+ operating margins by decade’s end are plausible if Security maintains ~10% CAGR (incl. M&A), cloud infra ARR delivers 40–45% in 2025, and Delivery stabilizes as signaled .