AKAMAI TECHNOLOGIES INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Transformation Journey: Akamai is transitioning from a CDN pioneer to a cybersecurity and cloud computing company. Security became the majority revenue generator in 2024, and cloud computing is growing rapidly.
• Security Highlights: Guardicore ARR reached $190M (+31% YOY) with the largest deployment to date; API security ARR grew from $1M in 2023 to $57M in 2024; security portfolio expanded to a holistic offering.
• Cloud Computing Highlights: Cloud infrastructure services ARR was $259M (+35% YOY), with 300 enterprises spending >$100k ARR; signed a $100M+ cloud infrastructure services contract; expanded data centers, enabled managed container service, upgraded object storage, added GPUs, enhanced Kubernetes engine, released Akamai app platform, and added 9 new compute ISV partners.
• Content Delivery: Unique edge platform provides performance and cost advantages; delivery revenue expected to stabilize and improve in 2025.
• Go-to-Market Transformation: Increasing hunters-to-farmers ratio, specialized sales teams, partner enablement, and optimizing sales operating model, account coverage, compensation, pricing, and channel leverage.

Segment Performance

• Security: In 2024, security delivered majority annual revenue (> $2B) and grew 16% YOY. Q4 security revenue was $535M, growing 14% YOY. Guardicore ARR ended 2024 at $190M (+31% YOY), and API security ARR was $57M (up from $1M in 2023). Combined ARR of Zero Trust Enterprise and API security solutions was ~$247M at year-end 2024.
• Cloud Computing: 2024 cloud computing revenue was $630M, growing 25% YOY. Cloud infrastructure services revenue was $230M (+32% YOY). ARR for cloud infrastructure services in 2024 was $259M (+35% YOY), with ~300 enterprises spending >$100k ARR. Q4 compute revenue was $167M, growing 24% YOY (comprised of $65M from cloud infrastructure services and $102M from other cloud applications).
• Content Delivery: 2024 delivery revenue was $318M, down 18% YOY in Q4. Expected to improve in 2025 with a stabilizing outlook.

Guidance

• Q1 2025: Revenue projected to be $1.0B - $1.02B (up 1% - 3% Y/Y or 3% - 5% constant currency); non-GAAP EPS expected to be $1.54 - $1.59.
• Full-Year 2025: Revenue expected to be $4.0B - $4.2B (flat - up 5% Y/Y or 1% - 6% constant currency); security revenue growth ~10% constant currency; compute revenue growth ~15% constant currency; cloud infrastructure services ARR growth 40% - 45% constant currency; non-GAAP operating margin ~28%; non-GAAP EPS $6.0 - $6.40.
• Long-Term: Goal to achieve double-digit revenue growth by end of decade, operating margins >30% by end of decade, resume non-GAAP EPS growth in 2026.

Risks

• Macroeconomic trends impacting revenue and earnings.
• Challenges in integrating acquisitions.
• Geopolitical developments affecting business operations and revenue.
• Foreign exchange fluctuations negatively impacting revenue and margins.
• Risk associated with customer concentration, particularly large customers.

Question and Answer

Q: Roger Boyd inquired about details of the large cloud deal, including workloads and competitive environment.

A: Tom Leighton mentioned the customer using Akamai's services, including special build-outs in Scandinavia.

Q: Madeline Brooks asked about the $100M compute deal and customer choice.

A: Tom Leighton stated the $100M deal is with the largest delivery customer, chosen for superior performance and pricing.

Q: Amit Daryanani asked about the largest customer headwind and operating margins.

A: Tom Leighton and Ed McGowan discussed the headwind from the customer's DIY build-out and margins improving with mix shift and operating leverage.

Q: Fatima Boolani asked about go-to-market transformation.

A: Tom Leighton discussed the two-year process of transforming go-to-market, increasing hunters-to-farmers ratio, and specialized sales teams.

Q: Frank Louthan asked about Edgio contracts and retention.

A: Ed McGowan discussed retention of Edgio contracts, with minimal churn expected.

Q: Rishi Jaluria asked about go-to-market disruption and Edgio pricing.

A: Tom Leighton and Ed McGowan discussed minimizing disruption and Edgio's impact on delivery pricing.

Q: John DiFucci asked about compute growth and profitability.

A: Tom Leighton and Ed McGowan discussed compute growth drivers, profitability from synergies, and cloud infrastructure services growth.

Q: Patrick Colville asked about compute transition impact.

A: Ed McGowan discussed transition of compute revenue to cloud infrastructure services.

Q: James Fish asked about security CAGR and expectations.

A: Ed McGowan discussed security growth drivers, including organic growth and M&A.

Q: William Power asked about AI and cloud infrastructure growth.

A: Tom Leighton discussed AI applications on Akamai's platform and cloud infrastructure growth drivers.

Q: Mark Murphy asked about security CAGR and M&A.

A: Ed McGowan discussed security growth expectations, organic vs. inorganic growth.

Q: Jonathan Ho asked about tariff impacts.

A: Ed McGowan discussed tariff impacts and efforts to mitigate them.