Akamai Technologies Q4 2024 Earnings Report

Akamai Technologies EPS Results

• Actual EPS: $1.19
• Consensus EPS: $1.52
• Beat/Miss: Missed by -$0.33
• One Year Ago EPS: N/A

Akamai Technologies Revenue Results

• Actual Revenue: $1.02 billion
• Expected Revenue: $1.02 billion
• Beat/Miss: Beat by +$4.63 million
• YoY Revenue Growth: N/A

Akamai Technologies Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 4:30PM ET

Akamai Technologies (NASDAQ:AKAM) provides cloud computing, security, and content delivery services in the United States and internationally. The company offers cloud solutions to keep infrastructure, websites, applications, application programming interfaces, and users safe from various cyberattacks and online threats while enhancing performance. It also provides web and mobile performance solutions to enable dynamic websites and applications; media delivery solutions, including video streaming and video player services, game and software delivery, broadcast operations, authoritative domain name system, resolution, and data and analytics; and cloud computing services, such as compute, storage, networking, database, and container management services to build, deploy, and secure applications and workloads. In addition, the company offers content delivery solutions; and an array of service and support to assist customers with integrating, configuring, optimizing, and managing its offerings. It sells its solutions through various channel partners. Akamai Technologies, Inc. was incorporated in 1998 and is headquartered in Cambridge, Massachusetts.

Akamai Technologies Q4 2024 Earnings Call Transcript

Key Takeaways

• Akamai reported Q4 revenue of $1.02 billion and non-GAAP EPS of $1.66, both exceeding guidance, as the company advances its shift from CDN pioneer to cybersecurity and cloud computing provider.
• For the first time, security products generated the majority of annual revenue, surpassing the $2 billion mark with 16% year-over-year growth, while the cloud computing portfolio grew 25% to $630 million.
• Cloud infrastructure services ended 2024 with $259 million in ARR (up 35% YoY), saw enterprise customers spending >$100 000 in ARR increase significantly, and secured its first >$100 million multi-year contract, with 2025 ARR growth guidance of 40–45%.
• During 2024 Akamai expanded its edge platform with a managed container service in 4 300+ PoPs, upgraded object storage (5x scalability, 10x performance), added GPUs for AI inferencing, and earned IDC and Gartner recognition in cloud IaaS and GenAI infrastructure.
• For 2025, the company guides to $4.0–4.2 billion in revenue (flat–5% YoY) with security growth of ~10% CC, compute growth of ~15% CC, and aims for double-digit top-line growth, >30% operating margin, 10% security CAGR, and 20% compute CAGR over the next 3–5 years.

Presentation

[Operator]

Please note this event is being recorded. I would now like to turn the conference over to Mark Stoutenburg, Head of Investor Relations. Please go ahead.

[Mark Stoutenberg, Head of Investor Relations at Akamai]

Good afternoon, everyone, and thank you for joining Akamai's fourth quarter twenty twenty four earnings call. Speaking today will be Tom Layton, Akamai's Chief Executive Officer and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward looking statements, including those regarding revenue and earnings guidance, along with our business outlook, three to five year goals and longer term targets. These forward looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments and any other risk factors identified in our filings with the SEC.

[Mark Stoutenberg, Head of Investor Relations at Akamai]

The forward looking statements included in this call represent the company's views on 02/20/2025. Akamai undertakes no obligation to update any forward looking statements, which speak only as of the date they are made. As a reminder, we will be referring to certain non GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. Also, as part of our ongoing commitment to transparency, we've enhanced our disclosures to provide investors with a more comprehensive understanding of our business.

[Mark Stoutenberg, Head of Investor Relations at Akamai]

This quarter, we've created a new presentation available in the Investor Relations section of our website, offering a bit more information on our product portfolios, financials and performance goals. This presentation supplements the information in our earnings release and annual filing and we encourage you to review it. Within the presentation, you'll find an overview of select revenue and year over year revenue growth rates. Please note, all growth rate percentages are reported on a constant currency basis. With that, I'll now hand the call off to our CEO, Doctor. Tom Layton.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Thanks, Mark. As you can see in today's press release, Akamai delivered solid performance in the fourth quarter with revenue coming in at $1,020,000,000 and non GAAP earnings per share coming in well above our guidance range at $1.66 I'm also pleased to report that we made excellent progress on our multi year journey to transform Akamai from a CDN pioneer into the cybersecurity and cloud computing company that powers and protects business online. For the first time in Akamai's history, security delivered the majority of our annual revenue in 2024, surpassing the $2,000,000,000 threshold and growing at 16% year over year. Our cloud computing portfolio recorded $630,000,000 in revenue last year, growing 25% over 2023. The portion of this revenue derived from our cloud infrastructure services was $230,000,000 up 32% over 2023.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Our cloud infrastructure services primarily consist of the compute and storage solutions that we've developed based on Linode. They also include our EdgeWorkers product and ISV solutions running on our cloud platform. Combined, security and compute accounted for two thirds of Akamai revenue in 2024, growing 18% year over year. And we exceeded all our year end annualized revenue run rate or ARR goals for the fastest growing areas of the business, namely for our GuardaCore platform, our API security solution and enterprise revenue for our cloud infrastructure services. These are three of the key areas that we anticipate will drive revenue acceleration for our overall business in 2026 and beyond.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

In the area of security, Akamai has expanded into new adjacent markets, growing beyond point solutions to provide a more holistic and comprehensive security offering. This has enabled us to expand our customer base and to better serve enterprises with a broader portfolio for protecting infrastructure, applications, APIs and user interactions in both cloud and on prem environments. Security growth in Q4 was driven by continued strong demand for our market leading Gardacor segmentation solution as more enterprises relied on Akamai to defend against malware and ransomware. The Guardicore platform ended the year with an ARR of $190,000,000 up 31% year over year and surpassing our goal of $180,000,000 In Q4, we signed our largest deployment to date for Gardacor with a leading IT services company in India. The solution covers 30,000 servers and nearly 300,000 endpoints.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

We also displaced a competitor segmentation offering that was falling short at major banks, but both Hong Kong and in The U. S. More than 80% of our segmentation revenue in 2024 came through channel partners, including one of the world's leading SIs, Deloitte, which wraps its services and implementation expertise around our segmentation and API security products to create value for customers that Deloitte knows well. Together in Q4, we won a $5,800,000 contract with Petrobras in Brazil to reduce the risk of a breach and ransomware attacks. We also partner with Deloitte to help defend two large European banks from API risks.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

In Q4, Akamai also signed a large contract for API Security with one of the biggest asset managers at brokerage firms in The U. S. Our API Security solution ended twenty twenty four with an ARR of $57,000,000 up from just $1,000,000 at the end of twenty twenty three and exceeding our goal of $50,000,000 Taken together, our API security solution and Guardicore platform ended 2024 with $247,000,000 of ARR. As we look ahead, we expect to generate continued strong growth for these products with a goal of increasing their combined ARR by 30% to 35% during the year. We also anticipate that over the next several years, the rapid growth and more meaningful amount of revenue from these new products will help offset the slower growth of our more widely adopted and market leading Web App Firewall and DDoS mitigation products.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

As a result, and as noted in our supplemental disclosure that Mark mentioned a few minutes ago, we believe that we can maintain a CAGR of about 10% in constant currency for our security products over the next three to five years with typical M and A. This would bring us to more than $3,000,000,000 in security revenue by the end of the decade. While our security product line is performing very well, our compute product line is growing even faster and has a much larger addressable market. We've come a long way since we expanded into the cloud computing market in 2022 with the acquisition of Linode. And we made a lot of progress last year, achieving what we set out to do in revenue growth, signing new enterprise customers, infrastructure deployment, product development, partner ecosystem expansion and migrating our own applications from hyperscalers to the Akamai cloud.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

We continue to sign compute customers at a rapid pace in Q4, including two financial software companies in The U. S, Two of the largest retailers in The U. S, a cybersecurity provider in Europe, an enterprise software company in Asia, 1 of the largest banks in Southeast Asia and an intelligent transportation system provider in Latin America. When we measure the progress of our cloud infrastructure services, we've been looking at the results through two lenses. Our primary lens is the uptake of these solutions by larger enterprise customers, such as those doing over $100,000 in ARR.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

The second lens is looking at the performance of these products across customers of all sizes. At year end, approximately 300 enterprises were spending at least $100,000 in ARR for our cloud infrastructure services, up significantly from the year before. Collectively, these customers finished the year with an ARR of $115,000,000 for our cloud infrastructure services, far exceeding our goal of $100,000,000 When you include all customers, the ARR for our cloud infrastructure services finished 2024 at $259,000,000 up 35% year over year. This is a substantial improvement from when we acquired Linode in 2022, when the ARR from these services was approximately $127,000,000 and was growing in the mid teens. In addition to enabling customer growth, our work to make Linode be enterprise grade has allowed us to move some of our most important products from hyperscalers to Akamai's cloud.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

This has resulted in improved performance and savings of well over $100,000,000 per year. Many of our customers have also significantly expanded their use of our cloud infrastructure services over the last year, some by a factor of 4x or more. By year end, 15 customers were spending over $1,000,000 in ARR for our cloud infrastructure services, more than triple the number from 2023. And today, we announced our first customer to sign a contract committing to spend more than $100,000,000 for our cloud infrastructure services over the next several years. We believe this is a remarkable validation of our new cloud capabilities signaling that an extremely performance comparable to or better than the hyperscalers. The recent improvements that we've made to our cloud platform will enable us to do even more for enterprise customers in 2025. For example, in the last year, we expanded Akamai's core data center footprint to 41 locations in 36 cities around the world. Next week, we plan to announce that we've enabled our new managed container service in our 4,300 plus points of presence in more than 700 cities around the world. We're currently testing this service with customer workloads in over 100 cities.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

We significantly upgraded our object storage solution with a 5x increase in scalability and a 10x increase in performance, making it comparable to the hyperscalers, but with much lower egress fees due to the efficiencies of our unique Edge platform. We added GPUs for a variety of AI and media use cases. One customer ran a proof of concept between Akamai and a hyperscaler and then chose Akamai for text to image AI inferencing workloads. Another customer uses our cloud for AI powered speech recognition for its in vehicle voice assistant. And an OTT provider switched from a hyperscaler to Akamai to provide a more cost effective platform for its ad supported streaming TV service.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

We enhanced the scale and security of our Linode Kubernetes engine product. Traditional cloud providers run Kubernetes platforms from a relatively small number of core data centers. Akamai's differentiated approach will combine the computing power of our cloud platform with the proximity and efficiency of our edge to put workloads closer to users than any other cloud provider. Building on technology that we acquired from RedCubes last year, we released the Akamai app platform to enable developers to build and deploy highly distributed applications in just a few clicks. And we added nine compute ISV partners last year, bringing our total to 23.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Our ISV partners accounted for $36,000,000 of cloud infrastructure services ARR at year end. We're very excited about our opportunity for continued strong growth as we bring the power of compute to the edge with our broadly deployed network getting compute instances closer to end users with an open platform that ensures flexibility and portability, orchestrated resource deployment to ensure efficient scaling and operations and predictable pricing with an unmatched ability to minimize egress costs. I think our rapid progress in cloud computing is summed up well in an evaluation of public cloud platforms released last month by IDC. Their worldwide public cloud market scape for IaaS identified Akamai as a major player relative to industry peers saying, Akamai has accelerated its journey into the public cloud IaaS space, transforming from a pure play CDN provider into a formidable public cloud competitor. In addition, Gartner positioned Akamai as an emerging leader for GenAI specialized infrastructure in their recent innovation guide for generative AI technologies.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

As we noted in the supplemental materials Mark mentioned, we're supporting a growing number of AI use cases with a special focus on inferencing. While it's still early days, we're excited about the long term revenue opportunity and we believe that the unique properties of Akamai's cloud position us to be a major player in AI inferencing in the years to come. As we look forward to the rest of 2025, our goal is to grow our total cloud infrastructure services ARR by 40% to 45% in constant currency. We believe that the accelerating growth of our cloud infrastructure services revenue will be driven primarily by enterprise customers. Given the great success that we're having with our cloud infrastructure services, we plan to focus more of our compute investments in this area.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

In particular, we're in the process of migrating some of our older cloud applications for tasks such as visitor prioritization, image and video management and live streaming workflow to ISV partners who specialize in these areas and who plan to move some or all of their workloads to Akamai's cloud. In addition to converting former competitors into important ISV partners for our cloud, we believe this transition will enable us to focus more of our internal resources on further development and expansion of our cloud infrastructure services. The transition also means that we expect that the revenue from some of our cloud applications will decline in 2025. And as Ed will discuss shortly, that we're projecting about 15% growth for our cloud computing solutions as a whole in 2025. As our cloud infrastructure services revenue continues to rapidly increase, we believe that we can reaccelerate the overall cloud computing revenue growth rate to achieve a CAGR of at least 20% over the next three to five years in constant currency.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

This would make cloud computing our third billion dollars product line by 2027. I'll next talk about content delivery, which continues to be an important generator of profit that we use to develop new products to fuel our future growth. Our unique Edge platform with over 4,300 points of presence in over 700 cities continues to be a major differentiator in terms of lowering our costs, enabling massive scale and providing superior performance. And this is true not only for delivery, but also for security and compute. In security, we use the platform to provide a massive shield against all sorts of attacks without impacting performance or raising costs.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And in compute, we use the platform to provide function as a service with our EdgeWorkers product. And as we'll announce next week, we'll also use this same platform to run our new managed container service in thousands of pops across hundreds of cities. This capability is unique in the market and it will enable our customers to get their compute workloads much closer to users. Akamai achieved substantial cost synergies by using the same physical server to support our delivery, security and now compute services in over 4,300 POPs in 700 cities. It's a unique capability and a key reason why Akamai has been so profitable while many of our competitors have struggled.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Our installed base of delivery customers also continues to be a key contributor to our growth in security and cloud computing, as we harvest the competitive and performance advantages of offering delivery, security and compute as a bundle on the same platform. That synergy works especially well for our security and compute customers that want delivery as a feature and see it as critical to their relationship with us over other vendors. In Q4, we signed many deals that included security and compute solutions alongside our best in class And in December, we acquired select customer contracts from Edgeo to And in December, we acquired select customer contracts from Edgeo to offer their customers our market leading delivery services and the opportunity to take advantage of Akamai's full range of security and cloud solutions. I'm pleased to report that we're beginning to see signs of improvement in the delivery marketplace with more customers willing to sign multi year contracts with predictable pricing, a more stable pricing environment generally and early signs of stabilizing traffic growth. As a result and as Ed will discuss in a few minutes, we now expect to see the year over year decline in delivery revenue shrink to about 10% this year. If the favorable trends hold, we should see the decline in delivery revenue continue to lessen in 2026 and beyond. As we noted in our call last May, our largest customer is navigating political challenges and is pursuing a DIY strategy.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

As a result, we expect that the revenue from this customer will produce a headwind of about 1% to 2% per year on our overall revenue growth rate for the next couple of years before stabilizing at a level similar to some of our hyperscaler customers, which would be about 2% to 3% of our total revenue. That said, I'm pleased to report that we entered into a five year committed relationship with this customer in Q4 that includes a substantial minimum annual spend, which provides greater predictability which reduces our exposure to their political situation in The U. S. While we're pleased with the progress that we made last year on our multi year transformation journey, we still have work to do to reach more new customers and to cross sell our new capabilities in security and cloud computing to our installed base. To drive greater top line growth over the next three to five years, we're transforming our go to market strategy to align more resources with the higher growth segments of our business and to accelerate the pace at which we add new customers.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

In particular, we've already begun to raise the ratio of hunters to farmers in sales and to increase the number of specialized sellers and pre sales resources that support sales of our GardaCore platform, API security and cloud infrastructure services. We're also investing more in partner enablement as the channel has become a major source of revenue growth for us. Based on advice from one of the world's top consulting firms, we're also embarking on a major project to optimize our sales operating model, account coverage framework, compensation structure, pricing strategy and the way that we leverage our channel partner ecosystem. As we disclosed in the supplemental forecast posted on Akamai's Investor Relations website, we believe that the combination of double digit security growth, very fast growth in cloud computing, a stabilizing delivery business and a constantly improving product mix should enable us to accelerate revenue growth in the years ahead and to achieve double digit revenue growth by the end of the decade, if not sooner. In fact, if you remove the impact of foreign exchange headwinds and the large customer I mentioned earlier, you can see that the acceleration is already underway.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Excluding these two factors, revenue growth accelerated in 2024 over 2023. And as Ed will describe shortly, we anticipate further acceleration in 2025. We believe that improving our top line growth and product mix combined with our continued efforts to improve efficiency will help to improve operating margins, so that we can meet and then exceed our goal of 30% over the next several years. We also believe that we can resume growing our non GAAP EPS in twenty twenty six. Six.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

While we still have much to do, we're very optimistic about the future. Our cloud computing strategy is taking hold as we envisioned. Our expanded security portfolio is enabling us to deepen and expand our relationships with customers and partners. And we continue to invest in Akamai's future growth, while also maintaining strong profitability. Now, I'll turn the call over to Ed for more on our results and our outlook. Ed?

[Ed McGowan, EVP and CFO at Akamai]

Thank you, Tom. Before I begin, I want to reiterate what Mark mentioned at the start of the call and highlight some of the new disclosures we issued earlier today. The materials we posted to the IR section of our website include a bit more detail than what we will cover in today's prepared remarks. Our aim is to provide deeper insights into our business and present our updated long term goals. While we do not intend to provide this level of disclosure every quarter, we will occasionally offer additional context if we believe it will be helpful.

[Ed McGowan, EVP and CFO at Akamai]

Today, I plan to cover our Q4 results, provide some color on 2025, including a few new disclosures and then cover our Q1 and full year 2025 guidance and I will close with our long term thoughts on revenue and profitability goals. Now let's cover our Q4 results starting with revenue. Total revenue was $1,020,000,000 up 3% year over year as reported and in constant currency. We continue to see solid growth in our compute and security portfolios during the fourth quarter. Edgeeo contributed approximately $9,000,000 of revenue in the quarter, which was in line with our expectations.

[Ed McGowan, EVP and CFO at Akamai]

Compute revenue grew to $167,000,000 a 24% year over year increase as reported and 25% in constant currency. In the fourth quarter, compute revenue was comprised of $65,000,000 from our cloud infrastructure services and $102,000,000 from our other cloud applications. As Tom pointed out, one of our largest customers is committed to spending at least $100,000,000 on our cloud infrastructure services over the next few years. We expect that their workloads will begin ramping up by the end of twenty twenty five. Moving to security revenue.

[Ed McGowan, EVP and CFO at Akamai]

Security revenue was $535,000,000 growing 14% year over year as reported and in constant currency. During Q4, we had approximately $12,000,000 of one time license revenue compared to $5,000,000 in Q4 of last year. As noted in our added disclosure, our security revenue was comprised of $2.00 $5,000,000 from Zero Trust Enterprise plus API Security, which grew 51% in constant currency year over year and $1,840,000,000 from all other security products, which grew 14% in constant currency year over year. Combined compute and security revenue grew 16% year over year as reported and 17% in constant currency in Q4 and now represents 69% of total revenue. Our delivery revenue was $318,000,000 slightly ahead of our expectations and down 18% year over year as reported and in constant currency.

[Ed McGowan, EVP and CFO at Akamai]

We anticipate an improvement in delivery revenue in 2025, driven by more positive outlook on delivery as Tom discussed earlier. International revenue was $490,000,000 up two percent year over year or 4% in constant currency, representing 48% of total revenue in Q4. Finally, foreign exchange fluctuations had a negative impact on revenue of $8,000,000 on a sequential basis and a negative $6,000,000 impact on a year over year basis. Moving to profitability. In Q4, we generated non GAAP net income of $254,000,000 or $1.66 of earnings per diluted share, down 2% year over year, flat in constant currency and well above the high end of our guidance range.

[Ed McGowan, EVP and CFO at Akamai]

These EPS results exceeded our guidance driven primarily by slightly higher than expected revenue, lower than expected transition services or TSA costs related to the Edgeeo transaction, greater savings from the headcount actions we announced in Q3 and lower payroll costs due to some hiring pushing from Q4 into Q1. Finally, our Q4 CapEx was $193,000,000 or 19% of revenue. Moving to our capital allocation strategy. During the fourth quarter, we spent approximately $138,000,000 to buyback approximately 1,400,000.0 shares. For the full year, we spent five fifty seven million dollars to buyback approximately 5,600,000.0 shares.

[Ed McGowan, EVP and CFO at Akamai]

We ended 2024 with approximately $2,000,000,000 remaining on our current repurchase authorization. It's worth noting that over the past decade, we have not only met our objective of buying back shares to offset dilution from our employee equity programs, but we have also decreased our shares outstanding by approximately 16% over that timeframe. Going forward, our capital allocation strategy remains the same to continue buying back shares over time to offset dilution from employee equity programs and to be opportunistic in both M and A and share repurchases. Before I move to guidance, there are several items that I want to highlight to help with your 2025 models. The first relates to revenue from the Edgeeo transaction.

[Ed McGowan, EVP and CFO at Akamai]

We now expect approximately $85,000,000 to $105,000,000 in Edgeeo revenue for 2025. In addition, we expect to have approximately $6,000,000 of TSA costs in Q1 related to Edgeeo. Approximately $4,000,000 of those costs will be included in cost of goods sold and the remainder in operating expense. We do not anticipate any TSA costs beyond Q1. Second, we expect our CapEx to be approximately two percentage points higher than last year for the following reasons.

[Ed McGowan, EVP and CFO at Akamai]

First, we plan to increase spend by about 1% of revenue to accommodate the increased traffic resulting from the Edgeeo transaction. Second, we anticipate approximately another 1% of revenue will be used for geo specific infrastructure builds to support the recently signed $100,000,000 cloud infrastructure services contract we announced earlier today. Additionally, we expect our CapEx spend will be heavily front end loaded with the first quarter seeing significantly higher expenditures compared to the rest of the year. This is due in part to the items I mentioned above and our plans to pull forward approximately $10,000,000 to $15,000,000 of CapEx into the first quarter to help mitigate the risk of potential tariffs that may be announced later this year. Third, we expect interest income to decline in 2025 due to lower cash balances resulting from recent acquisitions in our plan to retire our $1,150,000,000 convertible debt instrument that matures on 05/01/2025, along with expected lower investment yields as interest rates come down throughout the year.

[Ed McGowan, EVP and CFO at Akamai]

Fourth, for 2025, we anticipate continued heightened volatility in markets, driven by unpredictable timing and magnitude of Federal Reserve policy changes and their impact on interest rates. As an example of how impactful FX can be to our results, since our last earnings call in early November, the strength of the U. S. Dollar has negatively impacted our 2025 expectations by approximately $18,000,000 in revenue on an annual basis and negatively impacted our non GAAP operating margin by approximately 30 basis points and negatively impacted our non GAAP EPS expectations by approximately $0.09 per share. As a reminder related to currency, we have approximately $1,200,000,000 of annual revenue that is generated from foreign currency with the euro, yen and Great British pound being the largest non U.

[Ed McGowan, EVP and CFO at Akamai]

S. Dollar sources of revenue. In addition, our costs in non U. S. Dollars tend to be significantly lower than revenue and are primarily in Indian rupee, Israeli shekel and Polish zloty.

[Ed McGowan, EVP and CFO at Akamai]

Fifth and finally, as Tom mentioned and illustrated in our supplemental disclosure, the traction that we are seeing in our business is being obscured by the challenges facing our largest customer and the significant FX fluctuations. If we exclude the effect of this customer in FX, our revenue growth rate would have accelerated year over year in 2024 compared to 2023. Now moving to guidance. The first quarter of twenty twenty five, we are projecting revenue in the range of $1,000,000,000 to $1,020,000,000 up 1% to 3% as reported or up 3% to 5% in constant currency over Q1 twenty twenty four. We anticipate that Q1 revenue levels will be slightly lower than Q4 due to the following lower revenue from our largest customer as we discussed earlier, the negative impact of foreign exchange, reduced one time license revenue in Q1 from Q4 levels, two fewer calendar days in Q1 compared to Q4, thus two less days of usage revenue.

[Ed McGowan, EVP and CFO at Akamai]

And finally, a significant number of delivery customers have calendar year end dates on their contracts. Therefore, the aggregate impact of all those renewals tends to have a negative impact on Q1 revenue compared to Q4 levels. Note that we expect these items will be partially offset by a full quarter's benefit from Edge Hill. At current spot rates foreign exchange fluctuations are expected to have a negative $7,000,000 impact on Q1 compared to Q4 levels and a negative $15,000,000 impact year over year. At these revenue levels, we expect cash gross margin of approximately 72%.

[Ed McGowan, EVP and CFO at Akamai]

Q1 non GAAP operating expenses are projected to be $310,000,000 to $316,000,000 We anticipate Q1 EBITDA margin of approximately 41%. We expect non GAAP depreciation expense of $132,000,000 to $134,000,000 We expect non GAAP operating margin of approximately 28%. And with this overall revenue and spend configuration I just outlined, we expect Q1 non GAAP EPS in the range of $1.54 to $1.59 were down 6% to 3% as reported and down 2% to up 1% in constant currency. This EPS guidance assumes taxes of $57,000,000 to $59,000,000 based on an estimated quarterly non GAAP tax rate of approximately 19.5%. It also reflects a fully diluted share count of approximately 152,000,000 shares.

[Ed McGowan, EVP and CFO at Akamai]

Moving on to CapEx, we expect to spend approximately $237,000,000 to $245,000,000 excluding equity compensation and capitalized interest in the first quarter. This represents approximately 24% of total revenue. As noted earlier, we anticipate that our CapEx spending will be heavily front end loaded with the first quarter seeing significantly high expenditures compared to the rest of the year. Looking ahead to the full year, we expect revenue of $4,000,000,000 to $4,200,000,000 which is flat to up 5% as reported and up 1% to 6% in constant currency. We are providing a wider range than past practice due to the larger scale of our business, the uncertainty around our largest customer and continuing macroeconomic and geopolitical factors.

[Ed McGowan, EVP and CFO at Akamai]

We would expect to come in at the higher end of that range if we see significant weakening of the U. S. Dollar, traffic growth materially exceeds our current levels and there is no ban in The U. S. For our largest customer.

[Ed McGowan, EVP and CFO at Akamai]

We would expect to come in at the lower end of this range if we see significant strengthening of the U. S. Dollar, traffic materially slows from current levels and our largest customer is banned in The U. S. Moving on to security, we expect security revenue growth of approximately 10% in constant currency in 2025.

[Ed McGowan, EVP and CFO at Akamai]

In Q4 included in security the combined ARR for our Zero Trust enterprise and API security solutions was approximately $247,000,000 We expect the combined ARR of these two products to increase by 30% to 35 year over year in constant currency for 2025. For compute, we expect revenue growth to be approximately 15% in constant currency. Included in compute, our cloud infrastructure services delivered $259,000,000 in ARR exiting 2024. We expect cloud infrastructure services ARR year over year growth in the range of 40% to 45% in constant currency for 2025. At current spot rates, our guidance assumes foreign exchange will have a negative $38,000,000 impact to revenue in 2025 on a year over year basis.

[Ed McGowan, EVP and CFO at Akamai]

Moving to operating margins. For 2025, we're estimating a non GAAP operating margin of approximately 28% as measured in today's FX rates. Decline in operating margin for the full year 2025 is due mainly to depreciation expense being approximately 90 basis points higher than last year and the negative impact of foreign exchange year over year. We anticipate that our full year capital expenditures will be approximately 19% of total revenue, up approximately two points from 2024 due to the items that I listed earlier. As a percentage of total revenue, our 2025 CapEx is expected to be roughly broken down as follows: Approximately 4% for delivery and security, approximately 6% for compute, approximately 8% for capitalized software and the remainder is for IT and facilities related spending.

[Ed McGowan, EVP and CFO at Akamai]

Moving to EPS, for the full year 2025, we expect non GAAP earnings per diluted share in the range of $6 to $6.4 This non GAAP earnings guidance is based on non GAAP effective tax rate of approximately 19.5% and a fully diluted share count of approximately 152,000,000 shares. Before closing, I want to comment on our revenue and profitability goals for the next three to five years. Cloud infrastructure services is experiencing significant growth, which we believe will be the main driver of our total compute revenue in the near to medium term. Our goal is to grow total compute revenue at a compounded annual growth rate of approximately 20% over the next three to five years. Moving to security, given the size and scale in our security business, it is natural that we will see some products reach maturity and experience slowing growth rates, while other products in emerging areas will see more rapid growth.

[Ed McGowan, EVP and CFO at Akamai]

As a result, we expect security growth over the next three to five years to be led mainly by our newer Guardicore platform and API security products. However, some of our largest security products like Web Application Firewall or WAF and Prolexic are examples of some of our more mature products. We've been offering these products for over a decade and have reached a very high penetration rate within our customer base. As a result, we expect the growth rate for these products to begin slowing in 2025 and continue to moderate throughout the remainder of the decade. Given these dynamics in our security portfolio, our goal is to grow total security revenue at an overall compounded annual growth rate of about 10% over the next three to five years, including our typical level of M and A.

[Ed McGowan, EVP and CFO at Akamai]

We anticipate delivery revenue declines will moderate in 2025 with increasing stabilization expected over the next few years. In summary, we anticipate that the combination of double digit growth of our security products, the rapid expansion in our compute services, a stabilizing delivery business and a continuously improving product mix away from delivery will allow us to achieve double digit top line revenue growth by the end of the decade, if not sooner. As for profitability, we expect operating margins to reach 30% plus by the end of the decade. And with accelerating top line and expanding operating margins, our goal would be to deliver strong growth in non GAAP EPS over the next few years. Finally, while we're not providing specific guidance for 2026, we do anticipate revenue acceleration and margin expansion compared to 2025 levels.

[Ed McGowan, EVP and CFO at Akamai]

With that, I'll wrap things up and Tom and I are happy to take your questions. Operator?

[Operator]

We will now begin the question and answer session. The first question comes from Roger Boyd with UBS. Please go ahead.

[Roger Boyd, Executive Director at UBS Group]

Great. Thank you for taking my question and congrats on the quarter and congrats on the large cloud deal. Tom, I'd love if you could maybe expand a little bit on that, provide any more details on the nature of workloads this customer is bringing over. And it sounds like it's probably coming off a hyperscaler, but any additional info you can provide on the competitive environment there as it relates to pricing performance, edge presence? I think Ed noted there's some geospecific conditions the customer is looking for. And I know that's a lot, but thanks.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes. They already have been using substantial cloud infrastructure services at Akamai for a variety of media applications and will increase that usage. In addition, they have some special needs in Scandinavia and we are building out a data center there for them to handle substantial applications for them throughout Europe. So they're using the services in a normal way plus we have a special situation that we're doing a build out for them and development for them that ultimately we think many of our customers will use.

[Roger Boyd, Executive Director at UBS Group]

Super helpful. Appreciate the color.

[Operator]

The next question comes from Madeline Brooks with Bank of America. Please go ahead.

[Madeline Brooks, Analyst at Bank of America]

Hi, team. Thanks so much for taking my question. First is for housekeeping. I just want to clarify that the 100,000,000 compute deal is not the same as the five year deal that you signed with your largest delivery customer. And then I have a quick follow-up to that.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

They are the same customer.

[Madeline Brooks, Analyst at Bank of America]

Got it. Okay. Thank you. And then the other one too would be, can you just give us more details outside of just the geolocation on why they chose Akamai? Is it does that have anything to do with maybe newer products that you have, work on AI or intelligence, things of that nature would be helpful? Thank you.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes, they chose Akamai for superior performance and better pricing. We are very well connected throughout Europe. Nobody has the points of presence that we do. And so we can handle requests for this customer throughout the continent and get it into the data center facility they'd like to have in Scandinavia and do that very efficiently at a favorable price point because of our existing platform and capabilities.

[Operator]

The next question comes from Amit Darianni with Evercore. Please go ahead.

[Amit Daryanani, Senior Managing Director at Evercore ISI]

Thanks a lot and thanks for taking my question. I guess I have two quick ones hopefully. The first one with your largest customer, the $60,000,000 headwind that you talked about, I'm hoping you could just maybe expand a little bit on that. Is that headwind going to happen irrespective of what happens with the recent executive order around their operations? I'm just trying to understand like is this more about them intending to move some of the CDN in house or is it more from the executive order?

[Amit Daryanani, Senior Managing Director at Evercore ISI]

So that $60,000,000 headwind doesn't happen respective? It sounds like it's another 60,000,000 in twenty six million. Maybe just level set that kind of what's happening then, how to ring fence it, that would be helpful. And then just to push on operating margins, what do you think it takes for Akamai to get back to a 30% operating margin number over time? Any kind of help on revenue or cost control would be helpful. Thank you.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes. So the headwind is by and large because of their DIY build out as we've talked about. So they'll be taking on more of the services themselves. And there are political challenges obviously in The U. S.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

As a result of the five year agreement. Our exposure there is mitigated quite a bit. As we talked about in the disclosure last year, we had about $50,000,000 have about $50,000,000 of U. S. Business with this customer that obviously would be taken away if they are banned in The U.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

S. However, as a result of the minimum commitments made, our exposure there is less. As Ed pointed out, if they are banned in The U. S, then we would have less revenue from them than if they continue to operate. And if they continue to operate, there would be upside to the upper end of the range.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And Ed, do you want to talk about the margins?

[Ed McGowan, EVP and CFO at Akamai]

Sure. Yes. So mostly the expansion is going to come through two things. One, the mix is going to move more towards security and compute. And then just from an operating leverage perspective with the revenue growth, we just believe we can scale the business accordingly.

[Ed McGowan, EVP and CFO at Akamai]

And a lot of that additional growth will drop to the bottom line. The changes that Tom's talking about or mentioned on the call about go to market, some of that's already been funded by the action that we took before and we'll be very responsible with future investments. So we expect to see some scale as we grow top line.

[Amit Daryanani, Senior Managing Director at Evercore ISI]

Great. Thank you very much.

[Operator]

The next question comes from Fatima Boolani with Citi. Please go ahead.

[Fatima Boolani, Managing Director, Co-Head US Software Equity Research at Citi]

Good afternoon. Thank you for taking my questions. Tom or Ed, please feel free to chime in on this. With regards to TikTok, you talked specifically about the delivery business and some of the minimum commitments they've made to you to protect you. But I was actually curious if you can opine or comment on if that is a customer that has adopted other solutions in your portfolio, I.

[Fatima Boolani, Managing Director, Co-Head US Software Equity Research at Citi]

E. Specifically anything in the security realm that we have to be mindful of eroding away? And then I have a quick follow-up on the good market as well.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes, like any large customer, they pretty much use all our services. So they're a large delivery customer, they use a lot of our security services and actually a growing amount of our compute, our cloud infrastructure services. And we have factored that in to the guidance we've given, both the guidance for this year and three to five year guidance.

[Fatima Boolani, Managing Director, Co-Head US Software Equity Research at Citi]

Great. And just from a go to market perspective, Tom, you were very explicit in that there's been a lot of thoughtful change and maybe a little bit of an overhaul in the go to market organization by way of account segmentation, pricing strategy, etcetera. I'm wondering how far along are you in the process of ironing out or cementing a lot of these changes because it does seem like there might be a couple of things in flux from an aggregate go to market strategy perspective. So we'd love to hear kind of where you are on the journey to kind of overhaul the go to market organization and how we should think about you coming out the other end of that? Thank you.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes, great question. I think of this as sort of a two year process roughly speaking and we're in the beginning stages. We've already increased the number of our hunters and as I said, the ratio of hunting to farming. We've already increased and will do further increases in the specialized sales team. We are working now thinking through pricing structure changes, contract, potential contract structure changes, making progress in segmentation for the field.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

So a lot of work still underway. And you want to, I think, position this in the context that we're transforming the company. And you look at our product set and we're evolving substantially from what was a delivery company and then a delivery and say, a web app firewall company where most of our revenue has been. And you look at the products that are really growing and driving us forward to the future and you're looking at segment take GardaCore segmentation, enterprise zero trust security, you're looking at API security, huge greenfield there for us. And best of all, you're looking at our cloud infrastructure services, which is just really taken off.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

It's remarkable, I think when you see what's happened. We bought Linode about three years ago, had about $127,000,000 ARR growing mid teens at best and today more than doubled, now growing 35% last year and we're forecasting 40% to 45% this year. And I think what's really exciting about that is the addressable market for us is literally over $100,000,000,000 and that's probably just in our current customer base. So tremendous potential and it's really taking off now. So that changes the company and it changes what we need from the sales force, what they need to be doing.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Obviously, we want to protect and grow the revenue in our existing base, but we want to be out there selling those new products, both in the existing base and to a lot of new customers. And so in response to that, we're in the process of transforming the sales force to get the capabilities that we need to continue the very strong growth we're seeing in these new areas.

[Fatima Boolani, Managing Director, Co-Head US Software Equity Research at Citi]

Thank you.

[Operator]

The next question comes from Frank Louthan with Raymond James. Please go ahead.

[Frank Louthan, Managing Director at Raymond James Financial]

Great. Thank you. Can you give us let's see, can you give us an idea of what the logo growth was in the quarter? That'd be great. And is there any particular groups security, compute, etcetera, that saw better or worse growth from new logos? Thanks.

[Ed McGowan, EVP and CFO at Akamai]

Yes. Hey, Frank, this is Ed. Actually, logo growth obviously was probably most positively impacted from the Edgeo contracts that we acquired. We added a few hundred logos there, over 100 of those were new to the company. So that was the biggest addition.

[Ed McGowan, EVP and CFO at Akamai]

As far as where the new logos are coming from, it's mostly in security and the two new areas that Tom talked about, Guardicore and API security and also in the compute side as well. So I'd say it's probably stronger than normal new acquisition quarter in Q4, just normal course and then obviously Agio helped quite a bit as well.

[Frank Louthan, Managing Director at Raymond James Financial]

And what's your outlook for being able to retain those Agio contracts? Do you think some of those will turn off or what's the likelihood of those converting into more permanent customers?

[Ed McGowan, EVP and CFO at Akamai]

Yes. So we've gone through the migration at this point. So we've moved everybody off. The EdgeCo network is closed, so or shut down at this point. So we have a good idea of who's come over at this point.

[Ed McGowan, EVP and CFO at Akamai]

We don't anticipate significant churn from what we have today. We are very selective in what we took. We didn't take all the customers. There were certain things, certain small customers that didn't make sense for us to take. There were some acceptable use policy violations that we wouldn't take and there were some economics with certain customers that we didn't want.

[Ed McGowan, EVP and CFO at Akamai]

So factored into our guidance is what we think we'll do with that customer base. I think there's probably some upside there with upsell. Generally speaking, you want to land the customer, make sure they're happy and then start developing a pipeline with them. You don't want to just attack them right away with the sales pitch. So pretty happy with what we were able to retain.

[Ed McGowan, EVP and CFO at Akamai]

It was pretty much right in line, maybe a little bit better than we expected.

[Frank Louthan, Managing Director at Raymond James Financial]

Okay, great. Thank you.

[Operator]

The next question comes from Rishi Jaluria with RBC. Please go ahead.

[Rishi Jaluria, Managing Director at RBC Capital Markets]

Wonderful. Thanks so much for taking my questions. Just two quick ones. First, going back to some of the changes in go to market and changes in sales. What can you do on your end to minimize the disruption from that?

[Rishi Jaluria, Managing Director at RBC Capital Markets]

What are you assuming when you think about your 2025 guide? And I ask because in the history of software, we see sales regor changes to go to market and they always end up being a lot more disruptive than anticipated. So maybe if you could walk us through your assumptions and what you can do to minimize that disruption, that'd be helpful. And I have a quick follow-up.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Well, the first key is to avoid account breakage. And so we're not doing it all at once. As I mentioned, this is a two year journey. And of course, we're adding resources with specialization in the new products. And so those folks are helping do the cross sell and have a chance to hunt for new customers.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And so the key really I think is we will minimize the breakage of the rep associations with customers in the accounts. And Ed, is there anything you'd like to add to that?

[Ed McGowan, EVP and CFO at Akamai]

Yes. I'll just say that as Tom mentioned, we're working with one of the large consulting firms and bringing some expertise in to help us think through that. But absolutely, we want to be very careful with how we think about the movement from hunting to farming and how we support customers going forward. The less breakage, the better.

[Rishi Jaluria, Managing Director at RBC Capital Markets]

Got it. No, that's helpful.

[Rishi Jaluria, Managing Director at RBC Capital Markets]

And then just really quickly on Edgeo. I appreciate the color and the detailed guide. As we think maybe a little bit more longer term, given EDGEO is out of the fold now and you have those contracts and assets, how should we be thinking about the pricing environment for the delivery? And can just having fewer players in the space help maybe lead to a less aggressive pricing environment? Thanks.

[Ed McGowan, EVP and CFO at Akamai]

Yes. It really comes down to the different buckets of customers. I'd say with some of the larger high volume customers, we are seeing some rationalization to some extent, longer contract terms, which is helpful. Obviously, if you have less players, you do potentially have some better pricing, but we're already starting to see that in the market. So I'd say it's getting a little bit better, but it's always been a volume driven business.

[Ed McGowan, EVP and CFO at Akamai]

So to the extent that volumes continue to drive go higher, we'll still see the general trend in pricing to go down, but hopefully we'll see it moderate a little bit more in the future.

[Rishi Jaluria, Managing Director at RBC Capital Markets]

Wonderful. Thank you.

[Operator]

The next question comes from John DiFucci with Guggenheim. Please go ahead.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

Thank you. So Tom and Ed, I think this applies to both of you. Business looks to be going as planned and we appreciate the three to five year goals and actually all the information you gave us. This is great. But the guidance for next year implies 3% growth and I think there's a 1% of FX headwind, so that's about 4%.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

I get the large customer issues, but there's always issues, right? That aside for now, how do we get comfort that growth is going to accelerate to 10%? Is it just math, because I haven't gone through it all yet, that the faster growing portions of the business will more than offset the delivery business? And or are you and or I guess are you expecting improved macro backdrop in the forecast? Or does it I guess also related to this, does that 10% eventual 10% exclude any impacts from that large customer?

[Ed McGowan, EVP and CFO at Akamai]

All right. So I'll take this one, Tom. So I'll start with the back part. The large customer, what we've done is we've modeled out what their minimum spend would be for that five year contract. So think of that as being the bottom of the potential there for that customer.

[Ed McGowan, EVP and CFO at Akamai]

So there's more upside there potentially. But in terms of what we're seeing for growth, I think you have to kind of break the business down into the buckets that and why we showed you all that data. We'll start with delivery first. So delivery obviously has been a pretty big drag. It's starting to improve.

[Ed McGowan, EVP and CFO at Akamai]

We expect it to improve this year, continue to improve. So you should start to see some stabilization in delivery over that period of time. So that you think of that as that big drag sort of moderating significantly, so you don't have as much of a drag. So then when you take the businesses that we have, look at security, the bigger franchises are slowing a bit, but they're still growing. So we're still getting some growth out of that.

[Ed McGowan, EVP and CFO at Akamai]

And underneath that, say for example, in our security products, we have new fraud products and we'll be introducing new products. So that franchise will still grow, just won't be growing as fast as it was. But the between Guardicore and API, those are very large markets. We have market leading products. We think we'll be able to that included with the some of the changes we're making in go to market, the investments we're making in hunting, we'll get more productivity out of the sales force and there's still a long way to go there.

[Ed McGowan, EVP and CFO at Akamai]

So we think that that growth as it gets bigger and you get 10% growth out of security that we think is pretty durable, given those factors. And then there's compute. So with compute, we're going through a little bit of a transformation as Tom talked about with the sort of I don't want to say the legacy, but some of the other older products in the other applications bucket where we're partnering with some of the ISV partners, which has a little bit of a near term, the flattening of revenue in that bucket, but it gives us a much bigger opportunity to grow the market by partnering with those folks, getting some of their own business, but also getting a product that's being invested in etcetera. So we have a much more robust offering. And then again with the go to market investments we're making in compute, not only just with the hunters, but also with the overlay specialists, we think that will also help drive more productivity in the field. So hopefully that answered your question.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

Ed, that was really good. That's really helpful. It makes you think we need to do a lot more work around, especially compute, but it's exciting to think about Guardicore and API. I guess just one thing one last question on the compute business. And one of the things that I can't help but think about here is profitability.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

And it's always a question at anybody that's coming into this business. But you allude to having some advantages entering this business given the delivery business. I guess can you describe that in a little more detail? I mean, I kind of get the high level. Is it as simple as you're utilizing underutilized assets across your network or is there something more to it?

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

There are several reasons. First, we probably move around more data than pretty much anybody. And we figured out how to do that very efficiently. And so for customers of our cloud infrastructure platform, when they compare our pricing to the hyperscalers, we're a lot less, at least for the applications where they're moving around data, they got a lot of hits. And that's a lot of the applications out there today.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And so in head to head competition now with the hyperscalers, we can offer a much better price. Second is performance. And as we've talked about, we have the world's most distributed platform. We are in a position to get our customers compute instances a lot closer to end users. And not only is that good for scalability, it's great for performance because the business logic is running close to the users.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And so when we do head to head trials now against the hyperscalers, for a lot of the applications, we perform better. So we're able to offer better performance at a lower price point. And now with the managed container service, that's super exciting. We can actually support our customers' containers in hundreds of cities. Nobody is doing that today.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And so again and those are locations we've had already for the delivery business and the security business. So we're already there. So you get better performance and scalability at a lower price point. And then you combine that with the enormous market that we have a chance to tap into. And I think it's probably really important as you make the models to look at our cloud infrastructure services revenue and what's happening there.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

We only really started selling that to enterprises last year and went from very little revenue to $115,000,000 ARR and the total for our cloud infrastructure services $259,000,000 and we're projecting that total number to grow by 40%, at least 40% to 45 this year. So I would encourage you to keep a close eye on that because that drives a lot of growth and profitability for us going forward.

[Ed McGowan, EVP and CFO at Akamai]

Well, Tom, thank you. Just to add on the profitability, there's four main synergies. One is the backbone, so we obviously can leverage that. Obviously, we have ton of track that we serve there. Number two is with operations.

[Ed McGowan, EVP and CFO at Akamai]

So a lot of the folks that build out the CDN also build out the data centers for our compute business. So we didn't have to go hire a big team. Number three is engineering. We talked earlier in the year that we moved about 1,000 people out of the engineering organization and our delivery business into the compute business, both in operation and engineering. And then the fourth thing is on go to market.

[Ed McGowan, EVP and CFO at Akamai]

So we can leverage our existing customer relationships and our reps and we're augmenting that a bit with some of our specialists, but we don't have to go out and hire a whole new team. So there's an awful lot of operating expenses that we can take advantage of in terms of driving profitability.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

Thank you guys. This all makes sense. Now it's the easy part, you just have to execute. That was a joke, it's not easy.

[Ed McGowan, EVP and CFO at Akamai]

Exactly.

[John DiFucci, Senior Managing Director at Guggenheim Partners]

Go ahead. Thanks guys.

[Operator]

The next question comes from Patrick Colville with Scotiabank. Please go ahead.

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

Thanks for squeezing me in guys. So I guess this one's for probably Doctor. Tom and Ed. I mean in the prepared remarks, you touched on the reasons why computing is slow. But I just I'm going to my model now and the year on year delta is pretty stark.

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

And so I just want to make sure I've got them completely nailed down. So I guess to start off, this year 25% growth in compute, next year your guidance is 15%. Can you just double consider what is driving that?

[Ed McGowan, EVP and CFO at Akamai]

Yes, sure. So there's the two pieces. There's the cloud infrastructure security, which will continue to grow and actually accelerate. So that piece, it's the smaller piece of the two businesses, but that's going to accelerate pretty significantly. When you look under the covers of the other, the application services, there's a number of things in there.

[Ed McGowan, EVP and CFO at Akamai]

For example, we have some of our legacy net storage business, which will be end of life in that soon in the next year or two. And some customers will migrate to our cloud offering, some may decide to do something else, but that's going to be in a bit of a decline. And then we've got a lot of revenue that comes from some of these potential ISV partners. For example, we've got some of our transcoding. We announced something with a partner called Harmonic, where we're partnering with them and we're migrating some of that business over there.

[Ed McGowan, EVP and CFO at Akamai]

They're using us now for their compute. So that's going to be shifting over time. And there's probably four or five different buckets, whether it's image manager, video manager, our waiting room application or visitor prioritization. Those things we're going to be moving towards ISV partners and focusing more of our efforts on the infrastructure services. So you're going to see flattening to maybe slightly down in that bucket and you'll see that most of the growth coming from cloud infrastructure services.

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

Okay, okay, helpful. And then I guess just a quick one because I've been getting this a lot from investors. In terms of Akamai's exposure to The U. S. Fed, how should we think about that and in 2024?

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

And is there any expectations for that business embedded into guidance for 2025?

[Ed McGowan, EVP and CFO at Akamai]

So when you say the U. S. Fed, are you talking about the Federal Reserve interest rate policy? Are you talking about the federal government, just like selling to?

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

The latter.

[Ed McGowan, EVP and CFO at Akamai]

Okay. Yes. So we obviously do sell to the government. It's not a huge portion of our business. It's way too early to tell with what the cost cutting efforts that are going on, how that would impact us.

[Ed McGowan, EVP and CFO at Akamai]

But it's not an overly material part of the business. I wouldn't expect anything material out of that. We haven't modeled anything material, just kind of regular way business for now. So I'm not anticipating anything.

[Patrick Colville, Lead Equity Research Analyst at Scotiabank]

Crystal clear. All right. Thank you so much guys. I really appreciate it.

[Operator]

The next question comes from James Fish with Piper Sandler. Please go ahead.

[James Fish, MD & Senior Research Analyst at Piper Sandler Companies]

Hey guys. I appreciate all the details here details here and increased disclosures. I think investors will as well. Maybe just following up on something you just said first, Ed. Can you just walk us through some of that transition impact on the compute side?

[James Fish, MD & Senior Research Analyst at Piper Sandler Companies]

And which of the products you plan to sort of be transitioning off and how to think about the utilization of the compute network today that we need to invest this much after two years of investing this much behind the compute business?

[Ed McGowan, EVP and CFO at Akamai]

Yes. So I mean, I gave you the in terms of the investment, the percentage of revenue that we're spending for that 1% of that of the 6% that we're using for compute will be specifically for that big customer. And I've always talked about how from time to time if we do get large customers, you do tend to sometimes get outsized demand in a particular geo. We added an awful lot of investment this year in terms of bulking up the number of locations, etcetera. We're going to continue to add to those.

[Ed McGowan, EVP and CFO at Akamai]

We're also seeing very strong demand. So we're continuing to invest for that. But also keep in mind, we did migrate over $100,000,000 worth of our own applications that's running well over $500,000,000 of our revenue today and that business continues to grow. So we're still having to provide some investments to support that, which is significantly less than what we would be paying if we were to continue to use third party cloud providers. Now in terms of the two different components of revenue, I think I discussed the cloud infrastructure service, so I think you guys get that, that's the real fast growing stuff.

[Ed McGowan, EVP and CFO at Akamai]

And inside that other bucket is where you'll see that flattening out to declining. And it's really just the items I mentioned. We've got video management, image management, visitor prioritization and some various workflow components like transcoding that we have built from time to time for customers. There's not a ton of demand for it. It's grown decently, but it's not a specialty of ours.

[Ed McGowan, EVP and CFO at Akamai]

So we want to make sure that we're investing in the right areas. So as we're migrating that to partners and we shift our investment into the faster growing infrastructures cloud services, you'll see a bottoming out here this year and then the growth will reaccelerate to 20% led by cloud infrastructure services. And also keep in mind, I've got about last time we broke it out, it was about $50,000,000 of legacy storage. So think of that as like the media companies storing like a backup origin for their video files and music files and that sort of stuff, images, etcetera. That business will be winding down over the next year or so.

[Ed McGowan, EVP and CFO at Akamai]

So that's going to have a bit of a drag on revenue as well.

[James Fish, MD & Senior Research Analyst at Piper Sandler Companies]

Understood. And I think a lot of investors here, you guys are sitting here on an earnings call giving a three to five year framework. The last time we got this type of framework from you guys was many years ago. And I think in that framework, we had talked about a 20% constant currency security growth, for example, and we didn't hit that. So you're talking about a 10% CAGR that includes M and A from here within security.

[James Fish, MD & Senior Research Analyst at Piper Sandler Companies]

Just what's going to drive the reason that we actually achieve these results and that this is a reasonable expectation that that actually might be conservative as opposed to hoping that we hit that number? Thanks guys.

[Ed McGowan, EVP and CFO at Akamai]

Well, I mean to be fair, there were several years during that period of time when we did grow 20%. We always said 20% would include acquisitions. So we did some acquisitions along the way. We've looked we just did put up 16%. So that business has been very healthy.

[Ed McGowan, EVP and CFO at Akamai]

We've been adding a couple of hundred million of high margin security revenue for years now. And if you do the math, we'll continue to do that. In terms of the impact of acquisitions going forward, we're not anticipating doing significantly large acquisitions more of what we've done in the past, whether it's tech tuck ins or smaller companies that are got a product that's in market that's about to scale like API security, where the company is looking at making a big investment and go to market or raising around or looking to exit. We buy something like that or like GardaCore, we scale that up and we've shown that we've got success there. So I think we've got confidence in our M and A strategy.

[Ed McGowan, EVP and CFO at Akamai]

It's not going to be a significant portion, but maybe over time it might be one of the faster growing products as we exit the decade. And what we've been why we broke these businesses out for you can see how well we're scaling a business now that's a couple of hundred million growing extremely fast. So I think we have pretty good confidence. And again, yes, you can quibble over the 20% and maybe a couple of years we're in the high teens. But as we said, that would have included acquisitions and always do them.

[Ed McGowan, EVP and CFO at Akamai]

But I thought we did pretty well over that period of time. And we just thought now that we're getting to a scale of couple of billion, it made sense to update expectations as we see some of our products that we've been in the market for over a decade slowing down.

[Operator]

The next question comes from Will Power with Baird. Please go ahead.

[Will Power, Senior Research Analyst at Baird]

Okay, great. Hey, Tom, you provided some good examples in the prepared remarks, I think of some of the applications that are being used in our network. I mean, it seemed for some time that you should be well positioned for inference at the edge. And I just I wonder if you maybe update us just as along the lines of the total conversations you're having, what kind of the pipeline looks like, just kind of activity level you're seeing in terms of taking advantage of particularly some of these generative AI applications and inference that maybe is starting to develop or at least think is going to start to develop?

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes, I think there's a lot. AI powered ad image normalization, so that the various images have the same consistent size, quality, image classification, even for things like detecting disease in crops, AI powered speech recognition in cars, AI powered chatbots, sentiment analysis, text to image inferencing for a variety of applications. All sorts of applications are already using GenAI on the platform and we have partners, our ISV partners, some of them doing AI on the platform, web assembly, AI inferencing. So I would say it's early days, but all sorts of things being done on our cloud infrastructure services today.

[Will Power, Senior Research Analyst at Baird]

Okay. And then, I mean, as we look at the cloud infrastructure assumed acceleration, I think you're looking for 40% to 45% ARR growth. Any further breakdown? I mean, how much is inferencing influencing that or is that still early? And if not, what are kind of the key drivers of the acceleration there, including impact of the $100,000,000 deal? How does that factor in?

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes, the $100,000,000 deal doesn't do a lot this year. That doesn't really ramp up until the end of the year. So I don't think that's a material impact on our 40% to 45 projection. That will certainly help us in 2026 and beyond. And I don't think AI inferencing is a big part of the growth this year either.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

There could be some, but I think that will fall more into the upside category. I think it's just more the traditional uses of compute on the platform. And keep in mind that's 100,000,000,000 market today plus without getting into AI or the new large deal that we've done. And just as examples with our ISV partners, database at the edge, observability for all sorts of applications, media workflow, things like file transcoding and live encoding, video packaging, interactive web RTC. These are what our ISV partners have their applications doing on our cloud infrastructure platform, digital asset management, video optimization, game orchestration, fleet management, DRM, Kubernetes activity and auto scaling, ad insertion, server side ad insertion.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

So there's just a bunch of stuff that is just good old regular compute that's running on the platform. I would say we're as you can see from the examples we've given, we're selling it into pretty much all the verticals. A lot of financial companies are starting to use it now. Media broadly construed is still I think the sweet spot and partly that's by design, because those customers need to get great performance, they need to cut costs, they don't like writing a huge check to their biggest competitor. And they're big Akamai customers and they like Akamai a lot.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

So that's sort of the center of mass, but it goes across verticals and across a lot of use cases. And I'd say we're excited about AI. That's upside and probably comes down the road.

[Will Power, Senior Research Analyst at Baird]

That's helpful. Thank you.

[Operator]

The next question comes from Mark Murphy with JPMorgan. Please go ahead.

[Mark Murphy, MD - Software Research at JP Morgan]

Thank you very much. Tom, interested to get your view of the ramifications for Akamai of all of the technological advancements and efficiencies that we've seen with the DeepSeq model? And whether you see any signs of that opening up kind of a broader wave of experimentation on for doing edge inferencing on Akamai compute, maybe some of those AI applications are going to become more economically viable. And then I had a quick follow-up for Ed.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

Yes. I think the DeepSeek phenomenon or announcement, whatever you want to call it is very consistent with what we've been saying is going to happen. I think you'll see further improvements. It's great for us because it validates what we've been saying and how we've designed our cloud infrastructure platform.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

In fact, there's already entities running DeepSeek on our cloud infrastructure platform, along with other models. And it does mean that it is a lot less expensive. It doesn't need the giant core GPUs. It could be run on lighter weight GPUs. There'll be a lot of use cases where you want that on the edge.

[Tom Leighton, Co-Founder and Chief Executive Officer at Akamai]

And I think it's great and very much what we expected to happen. And I think you'll see more developments along those lines.

[Mark Murphy, MD - Software Research at JP Morgan]

Okay. That's great to hear. And Ed, as a follow-up on the security CAGR where you're expecting about 10% in the next three to five years, that's fairly close, I believe, to the overall market growing something like 12% to 14%. And you said that it includes typical level of M and A. If we think about it organically, should we pencil out something like maybe mid to high single digits organically?

[Mark Murphy, MD - Software Research at JP Morgan]

And then if you're able to find some of these tuck ins, you've done an incredible job picking those out and executing on those recently and they're growing like a weed. Then maybe the inorganic piece gives you a couple of few points there over the next three to five years. Is that a decent framework?

[Ed McGowan, EVP and CFO at Akamai]

Yes, I think that's a good way to think about it, Mark. I mean, obviously, at the scale we're at now over $2,000,000,000 and we talk about even the bigger revenue companies we've acquired have been $20,000,000 to $30,000,000 dollars That's insignificant. It's about a point in total from inorganic. In terms of the near term, there's going to be mostly from organic. But yes, probably maybe one point something like that as you get out a couple of years.

[Ed McGowan, EVP and CFO at Akamai]

And then obviously, if we pick a good company like we did with Noname or like we did with Gardacor, as you get out further, we consider that organic growth at that point that might be contributing because it's a faster growing area if we get into a hot space that's growing quickly. But in terms of like the to make a number in any given year, we don't anticipate getting much more than say maybe 1% from an acquisition inorganically.

[Mark Murphy, MD - Software Research at JP Morgan]

Okay, understood. Thank you so much.

[Operator]

I understand that we have time for one last questioner and that will come from Jonathan Ho with William Blair and Company. Please go ahead.

[Jonathan Ho, Research Analyst at William Blair]

Excellent. And let me echo the thank you for the additional disclosure. Just one question from me. How concerned should we be with potential tariff impacts? And can you maybe pass through higher costs that are associated with that?

[Jonathan Ho, Research Analyst at William Blair]

I know you're trying to maybe accelerate some investment ahead of time, particularly given your need to invest on the compute side over the long run. It does seem like there's maybe some exposure here. So just wanted to understand the implications there. Thank you.

[Ed McGowan, EVP and CFO at Akamai]

Yes. I mean, it's obviously tough to call, just given we don't know what the ultimate end game is here in terms of towers. But to the extent, we do have the ability to move supply chains around and we're looking at obviously doing that. There was some talk about Canada and Mexico, we do get some server bills out of there. But, so we fast forwarded some, I gave you the number $10,000,000 to $15,000,000 so it's not significant.

[Ed McGowan, EVP and CFO at Akamai]

In terms of can we pass some of these pricing costs along, we're certainly exploring that as part of the work we're doing with the consulting firm we hired. Overall pricing strategy is part of it. And to the extent that it becomes somewhat material in any way, we certainly would have to bake that into our pricing. But it's tough to say at this point because we just don't know what the final end state is.

[Jonathan Ho, Research Analyst at William Blair]

Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Mark Stoutenburg for any closing remarks.

[Mark Stoutenberg, Head of Investor Relations at Akamai]

Thank you, everyone.

[Mark Stoutenberg, Head of Investor Relations at Akamai]

As usual, we will be attending investor conferences throughout the rest of the quarter. We look forward to seeing you there and discussing everything that we talked about today. So thanks again for joining us tonight. I know it's a long call. We hope that you have a rest nice of your evening nice evening. Operator, you can end the call now.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Analysts

• Mark Stoutenberg, Head of Investor Relations at Akamai
• Tom Leighton, Co-Founder and Chief Executive Officer at Akamai
• Ed McGowan, EVP and CFO at Akamai
• Roger Boyd, Executive Director at UBS Group
• Madeline Brooks, Analyst at Bank of America
• Amit Daryanani, Senior Managing Director at Evercore ISI
• Fatima Boolani, Managing Director, Co-Head US Software Equity Research at Citi
• Frank Louthan, Managing Director at Raymond James Financial
• Rishi Jaluria, Managing Director at RBC Capital Markets
• John DiFucci, Senior Managing Director at Guggenheim Partners
• Patrick Colville, Lead Equity Research Analyst at Scotiabank
• James Fish, MD & Senior Research Analyst at Piper Sandler Companies
• Will Power, Senior Research Analyst at Baird
• Mark Murphy, MD - Software Research at JP Morgan
• Jonathan Ho, Research Analyst at William Blair