Akamai Technologies, Inc. (AKAM) on Q4 2021 Results - Earnings Call Transcript

Operator: Good day and thank you for standing by. Welcome to the Fourth Quarter 2021 Akamai Technologies Earnings and Acquisition of Linode Conference Call. Please be advised today's conference may be recorded. I'd now like to hand the conference over to Tom Barth, Head of Investor Relations. Please go ahead. Tom Barth: Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's Fourth Quarter 2021 and Acquisition of Linode Conference Call. Before we get started with the Linode acquisition that we just announced, today's earnings call format will be a bit different than normal. We will be presenting slides and associated content, and the link to the webcast can be found in the Events section of our Investor Relations website. We plan to post the full slide deck following the call, and I am now on Slide 2. As you can see from our agenda, speaking today will be Tom Leighton, Akamai's Chief Executive Officer; Adam Karon, Akamai's Chief Operating Officer and General Manager of the Edge Technology Group; and Ed McGowan, Akamai's Chief Financial Officer. Moving to Slide 3. Please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance. While I don’t intend to read this slide, these forward-looking statements are subject to risks and uncertainties and then involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. These factors include uncertainty stemming from the COVID-19 pandemic, the integration of any acquisitions and any impact from unexpected geopolitical developments. Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent company's view on February 15, 2022. Akamai disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we will be referring to some non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the financial portion of the Investor Relations section at akamai.com. And with that, let me turn the call over to Tom, and he'll start on Slide 4. Tom Leighton: Thanks, Tom, and thank you all for joining us today. Today is a very exciting day for Akamai. This afternoon, we announced that we've signed a definitive agreement to acquire Linode. We see this as a tremendous opportunity for Akamai and we believe that it will be transformational as we expand our business into adjacent markets, become more strategic for our customers and accelerate our growth and evolution as a company. We'll talk more about Linode in a few minutes. But first, I'd like to review some of the highlights from a very strong Q4 and 2021. Turning to Slide 5. Q4 revenue was $905 million, up 7% year-over-year. Our revenue growth was driven by the continued strong demand for our security products as well as our fast-growing Edge applications business. Non-GAAP operating margin in Q4 was 31%, up 1 point over Q4 in 2020. Q4 non-GAAP EPS was $1.49 per diluted share, up 12% year-over-year. For the full year, revenue was $3.46 billion, up 8% over 2020. We expanded non-GAAP operating margin to 32% last year, and we achieved this result while investing for future growth. Non-GAAP EPS last year was $5.74, up 10% over 2020. 2021 was also a very strong year for cash generation at Akamai. We generated $859 million in free cash flow last year, an increase of 78% over 2020. I think it's important to note that our excellent cash generation has allowed us to make strategic acquisitions like Guardicore in Q4 and now Linode to fuel our future growth while also returning capital to shareholders. In Q4, we spent $271 million to buy back just over 2.4 million shares of stock. Over the course of the full year, we spent $522 million to buy back approximately 4.7 million shares. Our primary use of cash is for M&A and offsetting the dilution from our equity compensation programs. Over the past 10 years, Akamai has also engaged in opportunistic buybacks that have resulted in a reduction of our fully diluted share count by about 12%. Last quarter, security products continued their rapid growth, generating revenue of $365 million, up 23% year-over-year. For the full year, security revenue reached $1.33 billion and grew 26% over 2020. Security represented 39% of our revenue last year, up from 33% in 2020. In recent years, Akamai has built one of the world's leading cloud security businesses. Our security solutions are highly differentiated and recognized as best in class by our customers, who rely on Akamai to protect their most important digital assets from very determined and highly capable attackers. Results in Q4 were especially strong for our Bot Manager solution, which helps to defend against a wide range of automated attacks. Our new Account Protector solution, which provides account takeover protection, also performed very well in Q4 in only its second quarter of availability. Our web app firewall offerings also posted excellent results in Q4. And Akamai was recognized as a leader in Gartner's 2021 Magic Quadrant for web application and API protection, scoring the highest of 11 vendors in ability to execute. In October, we acquired Guardicore to extend our Zero Trust solutions to help stop the spread of ransomware. As a part of Akamai, Guardicore has continued its strong growth momentum and closed major deals last quarter at one of the largest freight railways in the U.S. and at one of the largest telecommunication companies in South America. We're very excited about the value that Guardicore's micro-segmentation capabilities bring to our customers. And as Ed will talk about shortly, we now believe that Guardicore will drive significantly more revenue this year than we'd initially forecast when we announced the transaction last fall. Our CDN business generated revenue of $541 million in Q4, down 2% from Q4 in 2020. Traffic on our platform continued to be strong in Q4, peaking at over 200 terabits per second. Our Edge application solutions had a great Q4, exiting the year with an annualized revenue run rate of more than $200 million and growing 30% for the full year. Our Akamai EdgeWorkers solution was adopted by a top sporting equipment company, a global business travel service and one of the largest banks in the U.S. Overall, we're very pleased with our performance last year on both the top and bottom lines. We achieved our goals in 2021 and then some. And I want to thank our employees for delivering such strong results as they continue to cope with the challenges of the pandemic. I'll now move on to Slide 6. As many of you know, Akamai's mission is to power and protect life online. And our purpose in dong that is to make life better for billions of people, billions of times a day. Akamai has been doing this for more than 20 years, enabled in part by a series of market-defining innovations, starting with the invention of content delivery networks in the late 1990s. As you can see on the next slide, #7, we follow this breakthrough in Internet technology with fundamental advances in video streaming, application acceleration and web security. In each of these areas, Akamai was a major pioneer in enabling new capabilities. And in each of these areas, we're still the market leader today by far. Throughout the past 20 years, we've also been a pioneer and a leader in edge computing, beginning with the invention of Edge Side Includes in the early 2000s, a technology that's still used by thousands of our customers today. And now turning to Slide 8. We're taking the next major step in our evolution by creating the world's most distributed compute platform from cloud to edge, making it easier for developers and businesses to build, run and secure their applications online. As you can see in this afternoon's press release, we've entered into a definitive agreement to acquire Linode, it’s a privately held company that makes cloud computing simple, affordable and accessible. Linode is known for its developer-friendly services, the quality of their support and as a trusted Infrastructure-as a-Service platform provider. By combining Linode's developer-centric cloud advantages with Akamai's deep enterprise strengths, we believe that we can provide tremendous value to developers and enterprises as they build cloud applications on Akamai. We see plenty of opportunity for a differentiated offering among customers who desire ease of use, wider reach beyond just a few POPs, lower latency, stronger security and greater resiliency, all from a single platform and all at an affordable price point. Akamai's highly distributed edge platform has the global reach to enable any cloud application to deliver the best end-user experience anywhere that users or services consume apps, from the cloud to the edge, where more compute services will live as 5G and IoT take hold and expand. The Akamai platform is uniquely suited for workloads that require high throughput, low latency and instant scalability on demand. Akamai has been perfecting this capability for many years, and it's very hard to do. Akamai also has the capabilities needed to integrate seamlessly with both DIY cloud apps and third-party cloud vendors as part of the larger cloud ecosystem. We believe that this flexibility will appeal to enterprises that want a multi-vendor cloud strategy to mitigate their vendor concentration risk and to ensure resiliency and seamless availability in case one vendor service experiences an outage. And with Akamai's category-leading security solutions, customers will be able to secure their apps from their point of origin to the edge, all under Akamai's protective umbrella. Security delivered at the edge offers unique advantages since it enables customers to manage security policies across all their apps and infrastructure wherever they're located. We believe that such an end-to-end security approach will appeal to customers who want increased efficiency and greater resiliency along with lower security risk. The net of all this is that we believe that Akamai and Linode can solve customers' needs in ways that are not addressed in the market today, forming a powerful winning combination that will enable customers to build, deliver and secure their apps on the platform that powers and protects life online. Moving to Slide 9. We see the acquisition of Linode as a transformational opportunity for Akamai. This slide shows the way that we presented our business at our Investor Day last year. With Linode, Akamai will expand beyond security and delivery into the world's most distributed cloud services provider with leading solutions for security, delivery and compute, as shown here on Slide 10. We'll offer customers a breadth and depth of services uncommon in the cloud space today, a massive content delivery platform, the best application performance, easy-to-use cloud and edge compute and category-leading security solutions, all backed by expert services and support professionals to help power and protect life online. Given that we're announcing this acquisition at the same time as our earnings, I thought it would be helpful to have Adam Karon join us on the call today to talk more about Linode. Adam is our COO, and he's responsible for running our compute and delivery businesses. Later this year, we'll also plan to hold an Investor Day, when you'll be able to hear from Mani Sundaram, who leads our security business, as well as from other Akamai executives. After Adam speaks, Ed will cover the financial aspects of the acquisition and provide our outlook for 2022. Adam? Adam Karon: Thanks, Tom. I'll start on Slide 12. Tom just spoke about the 3 core product pillars we have at Akamai: security, delivery and compute. I’m going focus a bit deeper into the compute portfolio and what we think it will look like after the integration of Linode. Turning to Slide 13. I'll start with the existing Linode product portfolio, which is split into 4 product groupings, the first being compute, which has offerings like dedicated and shared CPUs, BareMetal, GPUs and Kubernetes; the next being storage, which provides services like block storage, object storage and a managed database service in beta; next, cloud orchestration; and finally, an award-winning set of developer tools that make it really easy for developers to use their platform. Their products are sold in traditional cloud models using online trials and online purchases. Turning to Slide 14. After the acquisition closes, the Akamai compute product portfolio we envision would consist of 5 product groupings: the first being compute inherited from Linode, containing shared and dedicated CPUs, GPUs, Kubernetes; storage, which would contain the block and object storage that came from Linode but would also now include Akamai's net storage; we have cloud optimization that would include Akamai's Global Traffic Manager, Cloud Wrapper and Direct Connect solutions; next, the developer tools we get from Linode as well as the existing Akamai developer tools now make the Akamai compute platform easy and accessible to developers all over the world; and last, but certainly not least, our Edge applications, which contain our EdgeWorkers and EdgeKV products that execute compute right at our edge. It will also include our Cloudlet's image and video manager and, of course, our API acceleration product. One of the exciting synergies would be in go-to-market. Akamai's compute products would not only be sold online, but because our current globally located enterprise sales force works closely with the buyers for cloud compute, they have the right relationships, and we would not need to create an overlay sales force. Another exciting go-to-market synergy would be our existing robust and global channel ecosystem that could also take these cloud compute offerings to market. And in both cases, new wallet share within the customer base could be open for future growth. Turning to Slide 15. Now let's talk about how we think about compute. Now computing at the edge or near end users and devices brings unique benefits for critical use cases that are in many locations and where data is in motion or ephemeral, whereas computing in the cloud brings other benefits that are usually for applications running in a smaller number of locations and where data is stored and persistent. Our combined platform would have both edge and cloud computing. And since modern applications are built as a collection of services, each with differing compute needs and data needs, only by combining the edge and cloud can we fulfill the varied needs of our customer base like data localization and low-latency containerized compute as well as more typical compute needs that are persistent and in fewer locations. The unique capabilities can come together when we are able to combine Akamai's Edge platform with Linode's cloud computing capabilities and then add in our Global Traffic Manager product to route across multiple clouds and cloud locations our global large private network that efficiently connects cloud and edge locations and messaging, bringing it all together, coordinating cloud and edge services. You end up with the world's most distributed compute platform from cloud to edge making it easier for developers and businesses to build, run and secure applications. Now on Slide 16. While Linode and Akamai can solve a number of customer use cases separately, I thought it would be useful to cover just a few examples of the use cases we believe we can help fulfill for our customers with this unique combination of products. In the sports vertical, you could imagine a sports league could leverage the new Akamai platform to deploy WebRTC services to enable a watch-along app that allows a group of friends to watch a game in sync while communicating with each other in real time. And they would be able to do that using our distributed VMs, load balancing and high-throughput egress. When you think of IoT and fleet management, you could see a shipping company building a distributed app to collect and parts video and telemetry data from trucks and route before backhauling the data to their data warehouse. And they'd be able to do that using our support of MQTT, our distributed VMs and direct connect capabilities. An e-commerce site can leverage Akamai to dynamically personalize their site based on the user's previous and current browsing activity without having to go back to their data lake, all using our managed database services, Kubernetes and Functions as a Service. In the metaverse, we can help create a persistent virtual experience when a game studio needs to connect users from across the globe in a fully immersive VR experience from any console, mobile device or browser, all using our distributed GPUs, low-latency and private backbone. And in health care, a hospital could leverage Akamai to create a platform that captures and archives videos of surgical procedures to help train doctors on new and emerging techniques using Bare Metal and our Object Storage. Now turning to Slide 17. The combination of Akamai and Linode can be a truly unique offering in the market. We plan to combine the ease of use and developer-friendliness Linode is known for with the wider reach, lower latency, strong security and greater resiliency that are Akamai's hallmarks. We expect our new combined offering to appeal to developers by offering core cloud compute functionality, ease of use and tools they need appeal to enterprises with security, uptime and reliability and drive future use cases as new applications can take advantage of the throughput performance and distribution of a market-leading global network. Turning to Slide 18. So with Akamai and Linode, we can have highly secure, elastic compute along with storage capabilities on the world's largest edge network, category-leading security, an edge computing platform for latency-sensitive workloads, all on Akamai's large global private network with a globally located enterprise sales force and robust channel ecosystem, all setting us up to win in the marketplace. And now I'll pass it to Ed to discuss the transaction details. Ed McGowan: Thank you, Adam. I will start my remarks with brief highlights of our very strong Q4 results, then provide some insight into the financial aspects of the Linode acquisition and then close with our Q1 and full year 2022 guidance. So moving to Slide 20. Starting with the Q4 highlights. We are very pleased with our strong Q4 results, capping off an excellent year for Akamai. Q4 revenue was $905 million, up 7% year-over-year or 8% in constant currency. Revenue was led by another quarter of very strong growth in security as well as strength in our edge applications business. Security revenue growth in Q4 was 23% year-over-year or 25% in constant currency, with Guardicore contributing revenue of approximately $10 million. We are very pleased with the initial momentum we've seen from Guardicore as well as the continued growth of the pipeline. It is also worth noting that our Edge Applications business surpassed a $200 million annual revenue run rate in Q4 and grew 30% for the full year in 2021. International revenue growth was another bright spot with revenue increasing 13% year-over-year or 16% in constant currency. Sales in our international markets represented 47% of total revenue in Q4, up 2 points from Q4 2020. These strong results were despite foreign exchange fluctuations, which had a negative impact basis and negative $10 million on a year-over-year basis. Non-GAAP net income was $243 million or $1.49 of earnings per diluted share, up 12% year-over-year, up 14% in constant currency and $0.05 above the high end of our guidance range. Finally, as Tom mentioned, we had an exceptional year from a cash flow perspective. Moving to capital deployment. During the fourth quarter, we spent approximately $271 million to buy back approximately 2.4 million shares. Our intention is to continue to buy back shares to offset dilution from employee equity programs over time and to be opportunistic, both M&A and share repurchases. Turning now to Linode on Slide 21. As you heard from Tom and Adam, we believe the combination of Akamai and Linode will create the world's most distributed platform for developers and businesses to build, run and secure their applications. Under the terms of the agreement, Akamai has agreed to acquire Linode in exchange for approximately $900 million of cash. The transaction will be treated as an asset purchase for tax purposes. And as a result, we anticipate significant cash income tax savings over the next 15 years. While this benefit will not impact our non-GAAP effective tax rate, we estimate the present value of these savings to be approximately $120 million. Turning to Slide 22. We believe that Linode currently has a very attractive financial profile and that there are considerable revenue and cost synergy opportunities in the future. Assuming a late Q1 close, in 2022, we expect the acquisition to: add revenue of approximately $100 million, have no material impact to our non-GAAP operating margin and be accretive to non-GAAP EPS by $0.05 to $0.06 per share. Looking beyond this year, we expect Linode to be additive to our non-GAAP operating margin as we continue to capitalize on revenue and cost synergies, including leveraging our go-to-market channel and marketing organizations to accelerate revenue from enterprise customers, realizing significant cost savings by utilizing our very large global private network that Adam previously talked about as well as leveraging our significant scale and supply chain along with our network deployment expertise. From a CapEx perspective, we expect Linode to add approximately 2 points to CapEx as a percentage of revenue in 2022 as we plan to expand Linode's capacity and locations to meet anticipated customer demand. However, over the long term, we do not expect the acquisition to meaningfully change our previously communicated goal of CapEx being in the mid-teens as a percentage of revenue. Turning to Slide 23. As Tom and Adam previously mentioned, upon closing the acquisition, we plan to update our revenue reporting to reflect 3 separate business groups: security, delivery and compute. The first revenue grouping, security, will remain unchanged from the existing reporting of our Security Technologies Group. The second revenue group will be delivery. Delivery will be comprised of edge delivery and services portion of our existing ETG organization but will exclude our net storage and Edge application businesses that were previously included as part of ETG revenue. For context, our Edge applications business, which had revenue of approximately $196 million in 2021 and our net storage business, which had revenue of approximately $57 million in 2021, will move to our new compute business. The third and final revenue group will be called compute. Compute will include Linode, plus our Edge Applications and Net Storage businesses I just mentioned. We believe that with strong execution, we can deliver more than $500 million of annual compute revenue in 2023. Turning to Slide 24. Before I provide our Q1 and 2022 guidance, I wanted to highlight a couple of factors to consider for your models. First, the Q1 and full year 2022 guidance I am about to provide does not reflect the revenue and non-GAAP EPS contribution we anticipate from Linode that I previously mentioned, since the acquisition has not yet closed. We plan to update our full year guidance to include Linode on the first earnings conference call after the deal has closed. Second, international revenue now represents nearly half of our total revenue. And the dollar has continued to strengthen since we reported in early November. Therefore, we currently expect a meaningful foreign exchange headwind in 2022. At current spot rates, our guidance assumes that foreign exchange will have a negative $45 million impact on revenue on a year-over-year basis. Finally, similar to 2019, we have 8 of our top 10 customers renewing in the first half of the year. As a reminder, we define our top customers as anyone contributing revenue of 1% or more. And that customer -- that group of customers contributed approximately 19% of total revenue in 2021. Although we expect to see a negative impact to revenue growth in the near term, we expect to see incremental revenue over time as these customers' traffic grows with us. I'd also note that while the cluster timing of these renewals is unusual, the pricing, contract terms are consistent with the broader trends in the market, and these renewals have been factored into our guidance. So with all that in mind, turning to our Q1 guidance on Slide 25. We are projecting revenue in the range of $896 million to $910 million or up 6% to 8% as reported or 8% to 10% in constant currency over Q1 2021. Foreign exchange fluctuations are expected to have a negative $2 million impact on Q1 revenue compared to Q4 levels and a negative $17 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 76%. Q1 non-GAAP operating expenses are projected to be $292 million to $296 million. We anticipate Q1 EBITDA margins of approximately 43%. We expect non-GAAP depreciation expense to be between $123 million to $124 million, and we expect non-GAAP operating margin of approximately 30% for Q1. Moving on to CapEx. We expect to spend approximately $120 million to $124 million, excluding equity compensation and capitalized interest in the first quarter. This represents approximately 13% to 14% of anticipated total revenue, which is down approximately 4 points from Q1 2021 levels. And with the overall revenue and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.39 to $1.43. This EPS guidance assumes guidance taxes of $38 million to $39 million based on an estimated quarterly non-GAAP tax rate of approximately 14.5%. It also reflects a fully diluted share count of approximately 162 million shares. Moving to Slide 26. Looking ahead to the full year, we expect revenue of $3.673 billion to $3.728 billion, which is up 6% to 8% year over year as reported or 7% to 9% in constant currency. We security revenue growth to be at least 20% for the full year 2022. This includes an expected Guardicore contribution of approximately $50 million to $55 million. We are estimating non-GAAP operating margin of approximately 29% to 30% and non-GAAP earnings per diluted share of $5.82 to $5.97. And this non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 14.5%, a fully diluted share count of approximately 162 million shares. Finally, full year CapEx is anticipated to be approximately 13% to 14% of revenue. In closing, we are very pleased with our 2021 performance and are excited to close on Linode and help customers build, run and secure their applications. Now I'd like to turn the call back over to Tom to say a few words before we take your questions. Tom? Tom Leighton: Thanks, Ed. I'll wrap up now on Slide 28. As I mentioned earlier, Akamai has had a rich and exciting history of innovation that has fundamentally enabled the Internet to provide enormous benefit to billions of people around the world. We are truly making life better for billions of people, billions of times a day. As incredible as Akamai's contributions to the Internet have been, I want you to know that I couldn't be more excited about Akamai's potential for the future as we expand our business with Linode and Guardicore, provide even greater value for our customers and shareholders and make life even better for Internet users everywhere. Ed, Adam and I will now be happy to take your questions. Operator: Our first question comes from Sterling Auty with JPMorgan. Sterling Auty: I wondered if you could give us some context in terms of what kind of growth was Linode experiencing before the acquisition? And then when you talked about kind of 2023 and beyond, I want to make sure I understand that new compute area, the $500 million, what kind of growth rate do you expect out of that segment? Ed McGowan: Sterling, this is Ed. Thanks for the question. So before the acquisition, they were growing at about 15%, give or take. The bigger customers were growing faster. And they were sort of containing their growth a bit. It was a very closely held company. So they were holding back a bit on their investment in go-to-market and their build-out. So obviously, that's one of the major synergies we bring. So we think we can accelerate that business pretty considerably. Now when I talked about the different components of the business, if you take the net storage business plus the edge applications business plus where Linode is, assume I talked about how we grew the edge applications business 30%. And if you remember back on Investor Day, that was our long-term target. Our net storage business, as it is today, is kind of a flattish business, kind of grows like the CDN. We expect that to obviously accelerate as we add new capabilities. And then the Linode business should accelerate quite a bit. So if you were to put those pieces together, and I talked about in '23 that I expected that we would be above $500 million in revenue, that sort of gets you to that 30% to 35% kind of growth rate in that business once you get through the acquisition. Sterling Auty: Right. And then -- but given those pieces, would you expect that growth to be durable at that level or kind of settle back into more of a 15% to 20%, just so we understand the longer-term context? And that's all for me. Ed McGowan: Yes. That's a great question, and I'll ask Adam to chime in a little bit here as well. Obviously, we're getting into a very, very big market. And what pushed us into this market was our customers. We were getting more and more requests for folks to -- continue to come with different use cases. Ourselves, we're spending quite a bit on third-party cloud today, whether it's through acquisitions or through IT projects. Just the overall growth of this market is so significant that we think there's certainly the market there to do that. I'll let Adam talk a little bit about some of these plans in terms of future integration and the growth prospects going forward. But it's quite possible that, that could be a durable growth rate going forward for that business. Adam Karon: Yes. I agree, Ed. I think we see that market growing very rapidly outside of what Akamai had before, and we see that with our customers in demand of our edge applications and asking us for this type of cloud computing as well. So we do expect it to be durable as that market continues to grow quite rapidly. Operator: Our next question comes from Keith Weiss with Morgan Stanley. Keith Weiss: Maybe 2 questions. One on the Linode acquisition. I just want to kind of better understand kind of like the buy versus like a partner decision. Can you help us understand what's interesting about sort of buying this asset, what you could do owning sort of Linode versus partnering with Linode or other type of cloud computing platforms out there, number one? And then number two, for Ed, just in looking at FY '22 and the margins coming down. Nice margin performance in Q4 and all throughout 2021. Can you talk to us a little what's going to be pressuring margins into 2022? Tom Leighton: Yes. By owning Linode, we can really scale up that business. We have a lot of expertise in network deployment and doing that in a cost-effective way to get enormous scale. Also, we've got a large enterprise sales force and a customer base that is hungry for us to bring them this kind of capability. We know how to make large-scale systems be reliable and perform well. And we can bring it all together as part of an end-to-end solution so that our customers can take their major applications, build them easily on Akamai, and that's where Linode comes in, run them. Of course, we have the world's largest and best content delivery platform to deliver it, and then wrap it all together under our security umbrella to make sure it stays secure. And so that's a compelling reason for us to make the acquisition here and provide the end-to-end service versus just partnering with the various cloud providers. Ed, do you want to take the margin question? Ed McGowan: Yes. Sure, Keith. And just to add on that, if I just look at the financial profile of the business we just acquired, think about getting up to that sort of scale of revenue, the type of investment you need to make, how long it will take you to get there. It's rare that you find companies that have profitability margins like we do. So to be able to bolt that on, it's immediately accretive, gets us to market much faster, there's a brilliance to the simplicity in terms of how they approach and how simple it is to use their system. That's an expertise that we're acquiring as well. So there's a lot to like about that. Now in terms of the margins. So there's a couple of things going on there. One of the points that I made in my prepared remarks was about foreign exchange. That's a big headwind for us, and we're very profitable outside the U.S. So that does put a little bit of pressure on margins for us. But also, we're making investments. And keep in mind, you have the full Guardicore business. We only had about 2 -- a little over 2 months in the first -- in the fourth quarter. So in the first quarter, we have full Guardicore and we -- cost in the business. And you've got, in the middle of the year is when we do our merit increase. That said, 2 things to point out. Number one, we're going to be -- I said we do about 30% in Q1. We've done very well managing costs. And then we also told you when we did the acquisition of Guardicore that in '23, we'd expect to get above 30% margins again. So will it be expanding margins? Might be slightly under 30% this year. As I said, somewhere between 29% and 30%, but we anticipate to get back above that in '23. Operator: Our next question comes from James Breen with William Blair. James Breen: Just looking at the Edge Technology Group, growth this year has been flattish off of some pretty high numbers from 2020 as a result of the pandemic. As you think about that going forward and with some of the repricing this year, can you just talk about some of the puts and takes relative to repricing some of those contracts as well as some of the sectors that were hit most by the pandemic potentially improving? Ed McGowan: This is Ed. I'll take that one. So yes, as far as the renewals go, as we've talked in the past, whenever we have a combination of renewals, we'll always call it out for you guys. Here's what I would expect with that group of customers: typical renewal pricing, nothing unusual in terms of anything in the market to call out there. I'd expect that group of customers to decline a bit in Q1, decline a bit in Q2 because like about half of the renewals already done. I got about half coming up here in April. And then I would expect that revenue to start to grow again. It's pretty typical of what you see in the CDN business when you have a cluster of renewals. Now those customers have varying contracts. Some of them are 1 year, some of them are 2, some of them are 3, and some of them have revenue commitments that will be used up before the contract is over. So it's very unusual to have this sort of a cluster. So that will put some pressure on growth here for the next couple of quarters, but then I expect that customer group to grow. They've been very busy buying up our security products, our compute product. I expect now they're great targets for the new acquisition we just picked up here. So I expect to expand the wallet share within those group of accounts. And this is just something that's pretty typical in the CDN business. And where we're seeing the pricing pressure is on the delivery side. We're not seeing it in the Security side, not seeing it at Edge. We're seeing it just in delivery. As far as the pandemic, we are starting to see a little bit of improvement in travel and hospitality. And as a reminder, that group was about 4% of our total revenue. I think that will sort of ebb and flow with how the pandemic goes. As we start to have these waves of new variants, travel slows down, as it goes away, travel picks up. Retail is still a bit sluggish, not really seeing a significant improvement. And just remember, we had set up a 0 overage, and the biggest acquirers of that type of contract are the retailers, especially in the U.S. So you see a little bit of a muted seasonality here in Q4 related to retail. But still some way to go here on retail. Travel is improving a bit. And in general, as we get past these renewals, you'll start to see the delivery business improve a bit. Operator: Our next question comes from Colby Syneseal with Cowen. Michael Elias: This is Michael on for Colby. Two questions, if I may. First, following this acquisition, you also did Guardicore. How would you describe the appetite for additional M&A? And as part of that, how does this acquisition impact the way that you're thinking about additional buybacks? I thought there was a pretty notable step up in the fourth quarter. And then on one other question, if I can squeeze it in. With this acquisition, $100 million of revenue coming in and you talked about 15% growth that seems durable, how does this change the way you're thinking about the long-term revenue growth profile for the company? Tom Leighton: Yes. Good questions. Obviously, we've done 2 large deals, the largest deals we've done in about 20 years over the last several months. I wouldn't expect to see us continue at that rate, certainly. We probably will do more tech tuck-ins and smaller acquisitions. In terms of the buyback, our primary use of cash is for M&A and to buy back equity to offset the dilution from compensation programs. Now as I mentioned, that said, we do also opportunistically buy back additional stock. And if you look over the last 10 years, it's averaged a little more than 1% a year. And so I think our general approach to use of capital is not changing here. Just we saw 2 exceptional opportunities, first with Guardicore and now with Linode. Guardicore really is a huge boost to our enterprise security business, Zero Trust capabilities. We believe they have the best solution to stop the impact of ransomware. And that's a huge, huge deal. And you see that in the improved guidance we've given. And just we closed the deal a few months ago, and we're looking at this year then of doing $30 million to $35 million and now, as you heard from Ed, substantially more than that. And I can tell you from talking to many of our customers, many of the world's major banks, they are very interested in what Guardicore can do, both the visibility it gives customers into their own networks and the ability to mitigate the impacts of ransomware. Now in terms of the durability of revenue growth from Linode, in the past, they were doing 15%. I think Ed and Adam talked about, we think we can do a lot more than that. Just consider that Linode doesn't really have a sales force, never mind a sales force like Akamai has going after major enterprises. And you combine that with the fact that our major enterprise customers have wanted us to have this capability for them. So we think we can really accelerate their growth and that it could well be that the 30% is sustainable. We're certainly going to try to do that. And if we're successful there, you can see Akamai as a whole back in double-digit revenue growth on a more sustainable basis, and that's certainly our goal. Operator: Next question comes from James Fish with Piper Sandler. James Fish: So curious, grew 22% -- actually, I'm sorry, 25% constant currency. But seem like new business slowed and the normalized security number was slightly down versus last quarter. So really, why aren't we growing faster in the segment when the market has come directly towards SASE, and it's been as healthy of a security market as we've probably seen since 2014. And have we seen a pickup at all in selling security outside of the existing CDN installed base? And just was squeezing in another one here, but what was the growth of our annual customer metrics you guys typically give in Q4 regarding the individual products and subsegments like in access control? Tom Leighton: I'll start with that and then hand it over to Ed. We're very pleased to see our security business grow 25% in constant currency. You talk about SASE, and that is a very small portion of our business today. In fact, SASE technically wouldn't even include micro-segmentation. I would imagine that's going to change in the near future because it's so important and it's going to become a requirement, I believe, for many of the world's major enterprises, certainly in the financial vertical. So the SASE framework is a small amount of Akamai revenue. And with Guardicore growing rapidly, the vast majority of our security revenue is the web security area, where we're protecting, think of it as B2C apps, from denial of service, from content corruption, from account theft, from data exfiltration, those kinds of attacks, which technically isn't part of the SASE framework. And so what you would think of is maybe more towards a SASE. We're getting very good growth on a small number. And of course the lion’s share of our security business is in the web security, API protection, where we're the market leaders and growing at a very fast clip on a good size number for us. And Ed, maybe you want to take the rest of the question. Ed McGowan: Yes. So Jim, we don't break this out every quarter, but I'll just go back to the IR Day. We set targets for application security, network security and security services. And as a reminder, those goals were for application security, 20% to 25%, 20% to 25% in network security and then security services of 10% to 15%. I can tell you that we achieved all of those and exceeded, in many cases, those metrics. Are there any other metrics that you were looking for? I think you mentioned something about customers? James Fish: Yes. I mean we used to kind of talk about penetration of number of customers that are on your WAF solution at this point. And I thought at the Analyst Day, we were going to get the annual update on those subsegments. Maybe you're saving that for the Analyst Day. Ed McGowan: Yes. That's what we're going to do. On Analyst Day, we'll have a deep dive on that. What I'll do is I'll provide -- I provided this metric before in terms of the number of customers that buy a security product, that's up to 68.5%. So that's up about 6% year-over-year. 2 or more is up to 34.5%. That's up about 3%. 3 or more is up to 20%. And we increased our customer base by about 6% for the year. Our total customer base is up about 6%. Security penetration is up about 6% year-over-year. James Fish: Helpful. If I can squeeze in one more. One now, we've heard on some of the smaller developer-focused solutions like Linode is that organizations tend to kind of graduate from these solutions to an AWS or Azure. What investments are you looking to make or event this sort of graduation and make it more enterprise-grade for the Akamai installed base? Or is it more about taking Akamai downmarket and be that developer focus that we've been looking for? Tom Leighton: I'll hand this over to Adam in just a minute, but we're interested in the developer base for sure because our large enterprise customers, their apps are built and, in many cases, managed by the developers. So we really care about a developer-friendly solution. But we are going to take this to our large enterprise customers. And Adam has a robust road map of added capabilities. And Adam, why don't you talk a little bit about that? Adam Karon: Sure, Tom. I think Tom mentioned earlier, our -- some of our expertise is just building and deploying larger network presence all over the globe. So that would be our first area to go and make those locations that Linode has just more robust and available to our customers. But building in things like availability zones, BPC, identity access management and then building in compliance like SOC2 and PCI are really on the core parts of our road map so that customers can not only bring their apps onto the platform but graduate and continue to grow and scale globally as they build, run and secure the application right on the Akamai platform. Tom Leighton: And I just would add, our customers have been pretty explicit with us that they are very interested in us having this capability. And putting it together with the world's best content delivery capabilities, the world's best application performance and the world's best security solutions to provide an end-to-end solution. So I think you will not see this be a situation where they migrate from, say, a Linode to a Hyperscaler. But our customers are interested in alternatives and end-to-end solutions that -- maybe there are some functions on hyperscalers today that I think would migrate to Akamai's new cloud platform. We'll be the world's most distributed cloud platform with now market-leading solutions in not just delivery and security but also compute. Operator: Our next question comes from Rishi Jaluria with RBC. Rishi Jaluria: Just 2. One on Linode and maybe an inverse of the last question. Obviously, they have a great traction of Akamai to cross-sell into that Linode base. You're obviously very, very strong in the larger enterprises with both security as well as the core delivery and Edge Applications business. Can you talk about your ability to actually take some of your more enterprise-grade products and actually sell them successfully downmarket once the Linode acquisition closes? And then I wanted to drill a little bit more into Q4 and what you saw from the e-commerce season. I know you talked a little bit about retail bounce-back being sluggish. But I know when we were on this call 3 months ago, one of the concerns was just with supply seeing concerns and the tough comps, e-commerce was going to be a little bit challenged in Q4. Just wanted to get a sense for what did you see specifically on the e-commerce side in Q4. Tom Leighton: I'll take the first question. Ed will take the second. Yes, we certainly can cross-sell into the Linode base. That's not our primary objective here. The primary objective is to take Linode and really scale that up and sell it into the large enterprise base. I think that's far more lucrative for us than taking our existing solutions and selling into the large number of small customers. And the focus will be moving Linode's capabilities into our platform and having a comprehensive solution for large enterprise customers. And Ed, you want to take the next one? Ed McGowan: Yes. I got it. So Rishi, on the commerce, you're right, when we had the Q3 call, we did talk about sort of a variety of commerce. I would say that we pretty much landed where we expected. We didn't really bake in a ton of upside really for 2 reasons. One was just uncertainty around supply chain, people potentially ordering earlier in the year. But the bigger factor was around the 0 overage. We've been in market now for over 2 years, and we've got a pretty high penetration so that you don't see as much of a bursting in Q4 as you do from the commerce customers. And as I've said, it's been a mixed bag. Some companies are doing pretty well, some aren’t doing so great. So again, I'd say it's kind of as expected, but we weren't going in expecting a ton out of our retail vertical this Q4. Operator: Our next question comes from Fatima Boolani with Citi. Fatima Boolani: Maybe a jump ball for you all just with respect to some of the new revenue classifications that we're going to be expecting in the next couple of months here. As I think back to your last Analyst Day, what was certainly helpful for us is to get a sense of what type of traffic mix you're expecting in the delivery franchise. So I'm curious with Linode in the family or soon to be, how you expect that mix of traffic to change relative to some of your expectations within the long and medium-term guide. And then I had a quick follow-up, if I could. Tom Leighton: Well, the traffic measured by bytes delivered is 95-plus percent big media and software downloads, gaming downloads. That's the vast majority of the traffic. That won't change with Linode. In fact, I would expect we'd be selling compute services to those same big media customers. In fact, several of them have expressed interest in that capability. So Linode won't change our traffic mix. And when we get together at IR Day, we'll do the deep dive in each of these categories to get a better feel of how the revenue is breaking down. Fatima Boolani: That's very helpful. And for Ed, I wanted to talk a little bit about the margin upside in the quarter. With the media business having some nice outperformance, we were still able to see a nice leverage fall through the model. So I'm just curious if you can walk us through some of the puts and takes within the cost-control elements of the business in the quarter. That would be helpful. Ed McGowan: Yes. Sure. Good question. So a couple of things to note on that. One is just a mix issue. So we obviously had a strong security quarter. I did a little bit better on security. So that drives very high incremental margins in the business. The other thing on the cost of goods sold line, the margins came in on the gross margin line a little bit better. Team has done a phenomenal job on driving down our bandwidth costs. As I look out towards next year, we expect traffic to grow sort of at normal rates. And my bandwidth costs are not really going up very much. So able to drive down bandwidth costs, that would be the big thing. We're getting good efficiencies, starting to see CapEx come down quite a bit. We won't see the depreciation fall off. You have to get a peak in, say, the next 1.5 years or so, then it will start to come off. But just around the -- around all the different organizations, which is doing -- really focused on efficiency. And we've seen good flow through when we get a little bit of a revenue upside. Operator: Our next question comes from Alex Henderson with Needham & Company. AlexHenderson: I was hoping we could talk a little bit about the architecture that you're anticipating as we go forward, whether you're planning on integrating the platforms at the Edge or whether you're -- as described in the slide deck, whether the Linode nodes are, in fact, relatively separate from your edge compute platform. Do you anticipate moving to a single software stack within each node? Or will these be separate nodes in that context? Tom Leighton: I'll start with that and then turn it over to Adam. You want to think of Akamai's platform is hierarchical. There's a core where functions such as storage would live, where there's dozens of locations for archive storage, migrating out all the way to the edge, where there's 4,000 PoPs, where most of our capabilities live today. Something else that's closer to the core in dozens of locations would be the Prolexic service. But things like delivering video, delivering software, accelerating your bank statement and most of all, the security other than Prolexic all live on the very edge out in 4,000 locations. EdgeWorkers lives out there too. EdgeKV lives out there. And Linode starts in the core in 11 locations, and we'll be expanding that quite a bit, and it will all be integrated together as part of one hierarchical platform. And then maybe, Adam, you could get a little bit deeper into that in terms of the software stack and so forth. Adam Karon: Yes. I think you covered most of it, but I think the way you can think about it is that the Linode stack itself can be segmented into multiple components. Just like Tom just described, you might have storage or databases that might exist closer to the core. And as you have more ephemeral-type instantiations of applications, you push those components further out towards our edge, ultimately culminating in our deep edge, where you'd have our Chrome V8 engines that can be instantiated on demand right on the edge itself. So that's our EdgeWorkers solution. But you can see kind of a Linode kind of stack like spanning the entire span and what Tom just described as the core all the way out to the edge. Alex Henderson: If I could follow up. You talked about the coder-centric capabilities of Linode. Can you talk about the degree to which coders are riding to this platform? And for that matter, to the Akamai platform, how many coders do you have right into your platform at this point? Tom Leighton: Adam, why don't you take that one? Adam Karon: Yes. On the Linode platform, they have over 150,000 customers today on their platform writing and deploying applications. On our -- was that the question? Alex Henderson: The degree to which the coders are writing to the platform, yes. I suppose they're not necessarily customers. I assume that customers have to do some writing. Adam Karon: The customers -- yes, they're primarily developers, which is 1 of the reasons for the benefit of bringing the developer-centric community that Linode brings to the Akamai community. And then those developers, as Tom described, a lot of them are the decision-makers inside of our enterprise customer base developing and deploying and, in some cases, managing those applications. And thus, that developer community becomes appealing -- appeals through those enterprise customers right back to Akamai. So it's kind of a great system that they have. Alex Henderson: Can you give us the Akamai-related data point relative to how many coders are writing to your edge compute capabilities? Adam Karon: I don't think I have that stat on hand right now. Operator: Our next question comes from Tim Horan with Oppenheimer. TimHoran: Will it take much investment to consolidate any of the great Linode both from a software and hardware perspective? And will you be operating on relatively similar hardware? And I guess same thing for the go-to-market strategy and I guess, customer care just a little bit about the overall investment. And then I just had a quick follow-up. Tom Leighton: Sure. So we are looking at the ways we can drive synergy between the hardware that the Linode platform runs on today and the Akamai platform. And you can imagine, we have a significant deep expertise in our network group and hardware engineering organizations that spend all of their time optimizing for that, which gives us our great COGS and Capex benefits inside of Akamai. So we'll look to do that as we integrate Linode. And then can you repeat the second half of the question? I think it was on go-to-market? Tim Horan: Yes. Just same thing for like customer care and go-to-market? Will you have to invest much to integrate? Adam Karon: Yes. No, the great thing about the platform is it is very self-service, very frictionless for developers to come on board. They have amazing documentation that make developers use of their platform easy. And they have a great customer care group inside of Linode that we've worked very closely with our -- and build up to the signing of this. And so we expect to have them operate more as a Tier 2 to our existing Akamai customer care organization. And of course, our existing enterprise sales force will be the sales force that goes to market, selling those products along with their existing self-service model they have today. Tim Horan: And you mentioned you have a very large network, obviously. Do you think you can get into the enterprise private line or global WAN market or just overall enterprise network indirectly? Adam Karon: Well, can you ask -- I think in terms of enterprise win or whatnot, we do partner very closely with our telco partners, and that's something that we work very closely with them when they have opportunities. We use our network in combination with theirs, where it makes synergy with those customers that want to use both our telco partners and Akamai. I'm not sure if that's what you were getting at or something that -- Tom Leighton: Think of Akamai as providing Internet connectivity to enterprises. That's not our business. We -- that's our partners' business. Now we do provide clean access so that an enterprise can sort of hide behind Akamai. And only Akamai can come through so that they maintain safety and security for their data centers. So we do that, but we're not -- we don't provide base connectivity. That would be our partners, which would be the carriers. Operator: Our next question comes from Franklin Louthan with Raymond James. Franklin Louthan: You mentioned earlier bringing scale to the business here. And I'm just curious what the strategy is for bringing scale to compete increasingly with large cloud companies that have some of the biggest scale in the world. And why the strategic decision to move in that direction and not bolster more of the security or the core CDN business? Tom Leighton: Yes. When you think of scale, there's a it. One is just how many servers do you have. Obviously, we have a lot. But the way we think about scale is more in terms of being distributed. And none of the hyperscalers come anywhere close to us in terms of being in 4,000 PoPs and having a real edge network. Now what we haven't had before is the managed VM, managed container services. And our customers have asked for that. That's been the one missing piece on our platform. Because customers for many of their apps would like to take the entire app, build it on Akamai, run it on Akamai, deliver it through us, where they know they get fabulous performance, instant scalability, where it becomes relevant to do so to have the edge computing really done on the edge and then to have it all be secure so that we can provide the end-to-end service. And so that's why we're doing this. And in some cases, there may be some -- of course, we've been competing with the hyperscalers for 15 years, and I think that will continue. And I think the hyperscalers themselves, several of them are our largest customers. And several of them are already using us for our compute capabilities, and I expect that to increase with the acquisition of Linode. And so it's an environment where we compete, of course, have and for many years and successfully. And what we do, we do really well. And that will be taking an application, making it easy to build and deploy on Akamai and then to have the world's best performance, scalability, global reach and security. And that's where Akamai excels. And that's the goal in making this acquisition is really to complete that story to be able to have the end-to-end capability to handle their applications. Adam Karon: Yes. And just to add, I think that -- I was going to -- this doesn't take away from our investment in security. And another way to think about it is you've now got 2 very exciting, fast-growing businesses inside of Akamai, led by 2 different leaders in the company. And the scale that we can bring -- turn the question around and think about if you're a $100-plus million company trying to scale to $1 billion, what would you need? You'd need an enterprise sales force. You'd need a global private network. You'd want to have a low-cost deployment model. You'd want to have access to customers and channel, and we bring all that. So this, to me, was a very natural adjacency for us. And I look at ourselves and what we're spending in third-party cloud, looking at bringing that in-house driving some additional synergies and savings there, it's just a natural extension of what we're doing and entering a really, really big, exciting market. And again, it doesn't take away from our ability to invest in security. As you saw, we did 2 very large acquisitions: one in security, one here in cloud. And we're very fortunate with our profitability and our cash flow generation to be able to do that. Franklin Louthan: So is the end goal to be able to provide some of these cloud computing functions on yourself that would -- that the large cloud companies would white label? Or are you going to be providing aspects that they just can't do themselves in their larger server farm requirements? Tom Leighton: I think both. There's things that we do today at a level that the hyperscalers don't do. I mean they have competing services, but in many cases, the hyperscalers use us and use our services for their own properties even though we compete with them. I do expect us to be partnering with, well, certainly many of the world's major carriers and white labeling our services. Of course, the carriers are major channel partners with us today, and I think that will increase through the acquisition of Linode because they've had an interest in being able to offer that kind of capability, and now it comes hand-in-hand with, well, the whole solution all put together. Operator: Our next question comes from Rudy Kessinger with D.A. Davidson. Rudy Kessinger: I want to go -- 2 things here. Starting off, going back to the customers that are going to have the repricing. You said basically declined in first half and then returned to growth in the second half. For the year in '22 over '21, what's your expectation for that group? Are they going to be slightly down or about breakeven on a growth basis? Ed McGowan: Yes. Good question. So I would expect those customers to be slightly up year-over-year. So as you decline in the first 2 quarters, you start growing the back half. Now there's also significant upside with the Linode products as well. You can imagine these guys have -- they spend tons of money in this area. So there's a potential there that you could continue to grow that base of customers. So not expecting that this year, but it's possible that we could start to tap into that. Obviously, we're going to have to build a pipeline, get customers lined up, but that's obviously, certainly a very target-rich group of customers. Rudy Kessinger: Got it. And then secondly, going back to Guardicore, a pretty substantial outperformance thus far. I think you said $10 million in the quarter. Initial expectation in Q4 was 6 to 7 and then obviously, 50 to 55 expected versus 30 to 35 originally. Just what's really driving that upside? What's really resonating well with this product, both with new customers and those that you're cross-selling? Tom Leighton: Well, obviously, ransomware is a big problem. And we believe that Guardicore has the best solution. It is easier to use than competing solutions, and micro-segmentation has a reputation for being really hard to implement and inflexible. It gives you great visibility in terms of what's going on in your network. Customers have really appreciated that. It's really important with security. And they have a solution that works with legacy systems that the competition doesn't have. They have built their own custom firewall. And the competing services will have to rely on the existing firewalls and whatever operating systems being used by a particular application and, in some cases, doesn't even exist and so they can't cover it. So it's the best solution and to a big problem that's rapidly growing. And so we've seen very strong interest in our customer base. And of course, we have a very large enterprise sales force that now can bring Guardicore into the large banks and the large enterprises, and the initial reception has been very strong. So yes, I'm very excited by their performance this year, and I'm looking forward to substantial growth in the future. Operator: This question comes from Jeff Van Rhee with Craig-Hallum. JeffVan Rhee: So 2 quick ones for me. First, I guess, on the cross-sell back into your base of Linode product. How critical is it to win over the developers in your base? I mean, obviously, you've got the relationship. Maybe you can come in and try to make the cross-sell, but there's a lot of power sitting in those developers. What is it about these tools that the developers will see as their best option? And how do you win them over? Tom Leighton: Adam, why don't you take that one? Adam Karon: of the most attractive things to the Linode platform is that their developer-centric tools make it really easy for customers who use their Kubernetes engine, use their managed VMs. It's just very simple to configure. Onboard comes with a ton of documentation, makes it very simple for somebody to learn how to use, and Onboard themselves and try their applications very quickly on their platform. We heard from developers inside of our own company as well as developers inside of our customers that they love to use the Linode tools, they're simple, easy. And that's really why we think we're going to win over the developers using that type of platform, something that's simple, easy to use and has great documentation. Jeff Van Rhee: Yes. And you may have missed it -- mentioned it. If I missed it, apologies, but in terms of
AKAM Ratings Summary
AKAM Quant Ranking
Related Analysis

Akamai Technologies Maintains Bullish Outlook on Compute Business Despite Delivery Segment Concerns

Akamai Technologies (NASDAQ:AKAM) received an increased price target of $120, up from $115, with a Buy rating maintained by DA Davidson.

In a recent investor call, Akamai's CFO Ed McGowan and Head of IR Mark Stoutenberg provided additional insights, expressing strong confidence in the company's Compute business, which is expected to see further growth acceleration, particularly as the enterprise segment continues to expand.

While there were conflicting reports about market share shifts in the Delivery segment, overall traffic growth remains weak. However, management expressed optimism about the growth potential of Noname, a key area of focus, and highlighted that operating margin expansion into the low 30% range is a top priority.

Akamai Technologies' Impressive Q2 Results

  • Akamai Technologies (NASDAQ:AKAM) reported a significant uptick in its stock price following impressive second-quarter results.
  • The company announced a 15% increase in security revenue to $498.7 million and a 23% jump in compute revenue to $151.5 million.
  • Akamai has revised its full-year adjusted EPS guidance upwards, reflecting a positive outlook and continued demand for its products.

Akamai Technologies (NASDAQ:AKAM) recently made headlines with its impressive second-quarter results, which not only exceeded expectations but also led to a significant uptick in its stock price. As a leading provider of security and cloud computing products, Akamai's financial performance is closely watched by investors and industry analysts alike. The company's shares surged by 10% to $100.94, positioning it among the top gainers in the S&P 500. This surge was a direct response to the company's announcement of a 15% increase in security revenue, reaching $498.7 million, and a 23% jump in compute revenue to $151.5 million. However, it's important to note that delivery revenue saw a decline of 13% to $329.4 million.

The financial metrics provided by Akamai further underscore the company's strong quarter. With adjusted earnings per share (EPS) at $1.58 and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at $408.9 million, Akamai not only surpassed analyst expectations but also showcased its robust financial health. The total revenue saw a 5% year-over-year increase to $979.6 million, which is a testament to the company's ability to grow its core business segments effectively.

In light of these strong results, Akamai has confidently revised its full-year adjusted EPS guidance upwards to between $6.34 and $6.47, from the previously forecasted range of $6.20 to $6.40. This adjustment reflects the company's positive outlook and the anticipated continued demand for its security and cloud computing products. CEO Tom Leighton's remarks about the quarter's achievements further highlight the strong customer interest in Akamai's offerings and the successful launch of new cloud services, indicating a strategic direction that aligns with market demands and emerging technology trends.

Despite the positive momentum, it's important to recognize that Akamai's shares have experienced some volatility, with a 15% decline for the year. This suggests that while the company is making significant strides in its operational and financial performance, external factors and market dynamics continue to influence its stock price. Investors and stakeholders will likely keep a close eye on Akamai's future performance, especially in the rapidly evolving sectors of security and cloud computing, where competition is fierce and innovation is key to maintaining a competitive edge.

Akamai Technologies Earns an Upgrade at Baird

Baird analysts upgraded Akamai Technologies (NASDAQ:AKAM) to Outperform from Neutral, raising the price target to $135 from $128. The firm’s upgrade stems from optimism around Akamai's expanding security business, which is anticipated to represent 50% of the company's total revenue in 2024, up from 39% three years earlier.

Highlighting the current valuation's significant discount compared to its historical five- and ten-year averages, the analysts see a compelling risk/reward scenario for investors. Despite the ongoing challenges in the delivery segment, the analysts believe this is already well accounted for in the market's expectations, and see potential upside in the compute segment by 2025 and beyond, which currently holds low investor expectations.

Akamai Technologies Drops 7% Following Q4 Results

Akamai Technologies (NASDAQ:AKAM) experienced a 7% decrease in its share price intra-day today, following the company's release of fourth-quarter results that fell short of revenue expectations and provided a cautious outlook for the first quarter of 2024.

The cloud computing firm reported earnings per share (EPS) of $1.69, beating the consensus predictions of $1.60. However, its revenue for the quarter was $995 million, slightly below the expected $999.09 million.

Within its revenue breakdown, Akamai's security services contributed $471.0 million, an 18% increase year-over-year but just below the forecast of $473.3 million. Its delivery services saw a downturn, earning $389.0 million, a 6.3% drop from the previous year and less than the $392.8 million forecast. On a positive note, compute services reported a 20% year-over-year growth to $135.0 million, exceeding the anticipated $132.7 million.

For the upcoming first quarter of 2024, Akamai anticipates its EPS to range between $1.59 and $1.64, compared to the analyst expectation of $1.59. The company expects revenue to be in the range of $980 million to $1 billion, compared to the analyst projection of $993.4 million.

Akamai Stock Jumps 8% on Solid Beat & Raise

Akamai Technologies (NASDAQ:AKAM) shares jumped more than 8% on Wednesday after the company reported its Q1 earnings results, with EPS of $1.40 coming in better than the Street estimate of $1.32. Revenue was $916 million, beating the Street estimate of $910.51 million, driven by the Delivery upside, mostly offset by another Security miss.

For Q2/23, the company expects EPS in the range of $1.38-$1.42, compared to the Street estimate of $1.35, and revenue in the range of $923-$937 million, compared to the Street estimate of $919 million.

For the full year, the company anticipates EPS of $5.69-$5.84, compared to the Street’s $5.48, and revenue of $3.74-3.785 billion, compared to the Street’s $3.73 billion.

Akamai Technologies Shares Surge 6% on Q3 Beat

Akamai Technologies (NASDAQ:AKAM) shares rose more than 6% yesterday following the company’s reported Q3 results, with EPS of $1.26 coming in better than the Street estimate of $1.22. Revenue was $882 million, compared to the Street estimate of $875.83 million.

Compute and Security accounted for 55% of revenue, but Security has seen a major slowdown in growth, and its Delivery business declined 11% year-over-year. The company noted slowing sales cycles and media and advertising under pressure. Competitors with new platforms are more integrated and bundling (network, security, compute) at major price discounts with integrated functionality.

The company’s Q4 revenue guidance implies 3.3% year-over-year decline at the midpoint, driven by (1) FX headwinds, (2) lengthening sales cycles, (3) seasonality, and (4) contained pressure in CDN from recent price reductions.

Akamai Technologies Reports Q2 Results, Provides Muted Growth Outlook

Akamai Technologies, Inc. (NASDAQ:AKAM) reported its Q2 results, with EPS of $1.35 coming in better than the Street estimate of $1.31. Revenue was $903 million, slightly better than the Street estimate of $899 million.

Delivery performance was weak (down 11% year-over-year) on moderating traffic, recent renewals, and FX headwinds.

Key points from the earnings announcement include (1) delivery traffic is expected to be muted for several quarters and, to reduce costs, Akamai is now turning away some customers with extreme peak traffic, (2) Linode commentary was encouraging, (3) security deceleration suggests continued slowdown in more established products, and (4) guide doesn't assume an improving macro and commentary suggested worsening environment in some markets (e.g., Europe).