Akamai Technologies Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2022

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q4 2021 Akamai Technologies Earnings and Acquisition of the node conference call. At this time, all participant lines are in listen only mode. After the presentation, there will be a question and answer 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.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's Q4 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.

Speaker 1

And I am now on Slide 2. As you can see from our agenda, speaking today will be Tom Layton, Akamai's Chief Executive Officer Adam Caron, 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 involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.

Speaker 1

These factors include uncertainty Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10 ks and quarterly reports on Form 10 Q. The forward looking statements included in this call represent Akamai'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.

Speaker 2

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 even more strategic for our customers and accelerate our growth and evolution as a company. We'll talk more about Linode in a few minutes.

Speaker 2

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 $905,000,000 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.

Speaker 2

Q4 non GAAP EPS was $1.49 per diluted share, up 12% year over year. For the full year, revenue was $3,460,000,000 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.

Speaker 2

We generated $859,000,000 in free cash flow last 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 DardaCore in Q4 and now Linode to fuel our future growth, while also returning capital to shareholders. In Q4, we spent $271,000,000 To buy back just over 2,400,000 shares of stock. Over the course of the full year, we spent $522,000,000 To buy back approximately 4,700,000 shares. Our primary use of cash is for M and A and offsetting the dilution from our equity 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%.

Speaker 2

Last quarter, security products continued their rapid growth, Generating revenue of $365,000,000 up 23% year over year. For the full year, Security revenue reached $1,330,000,000 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.

Speaker 2

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 2nd 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 Gardacore to extend our 0 Trust solutions To help stop the spread of ransomware. As a part of Akamai, Gardacore has continued its strong growth momentum and closed major deals last quarter at 1 of the largest Great Railways in the U.

Speaker 2

S. And at one of the largest telecommunication companies in South America. We're very excited about value that Gardacore's micro segmentation capabilities bring to our customers. And as Ed will talk about shortly, we now believe that Gardacore will drive Individly more revenue this year than we'd initially forecast when we announced the transaction last fall. Our CDN business generated revenue of $541,000,000 in Q4, down 2% from Q4 in 2020.

Speaker 2

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 $200,000,000 And growing 30% for the full year. Our Akamai EdgeWorker 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.

Speaker 2

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 doing that is to make life better for billions of people, billions of times a day.

Speaker 2

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, number 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 EdgeSight In the early 2000s, a technology that's still used by thousands of our customers today.

Speaker 2

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, the 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 We 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 As the global reach to enable any cloud application to deliver the best end user experience anywhere that users or services consume apps.

Speaker 2

From the cloud to the edge, where more compute services will live as 5 gs 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 It integrates 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 the multi vendor cloud strategy to mitigate their vendor concentration risk And to ensure resiliency and seamless availability in case 1 vendor service experiences an outage.

Speaker 2

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.

Speaker 2

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 Caron 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.

Speaker 2

Later this year, we'll also plan to hold an Investor Day And you'll be able to hear from Mani Sundara, 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? Thanks, Tom. I'll start on Slide 12.

Speaker 2

Tom just spoke about the 3 core product pillars we'll have at Akamai: Security, delivery and compute. I'm going to 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, bare metal, GPUs and Kubernetes.

Speaker 2

The next being storage, Which provides services like block storage, object storage and a managed database service and data. 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.

Speaker 2

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 Inaccessible to developers all over the world. And last, but certainly not least, our edge applications, which contain our edge workers and edge KB products Execute compute right at our edge.

Speaker 2

It will also include our cloudless 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, 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.

Speaker 2

Turning to Slide 15. Now let's talk about how we think about compute. 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.

Speaker 2

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.

Speaker 2

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 and think while communicating with each other in real time. And they will be able to do that using our distributed VMs, 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 routes before backhauling the data to their data warehouse. And they'd be able to do that using our support of MQTT, our distributed VM 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 link, 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.

Speaker 2

And in healthcare, a hospital can leverage Akamai to create a platform that captures and archives videos of surgical procedures to help train doctors A new and emerging technique using bare metal and our object store. Now turning to Slide 17. A combination of Akamai and Linode can be a truly unique offering in the market. We plan to combine 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 of new applications to take advantage of the throughput, Performance and distribution of a market leading global network.

Speaker 2

Turning to Slide 18. So with Akamai and Linode, we can have highly secure elastic compute along with storage capability on the world's largest edge network, Category leading security and 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. 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.

Speaker 2

So moving to Slide 20. Starting with the Q4 highlights. We are very pleased with our strong Q4 results It's capping off an excellent year for Akamai. Q4 revenue was $905,000,000 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 image applications business.

Speaker 2

Security revenue growth in Q4 was 23% year over year We're 25% in constant currency with Gardacore contributing revenue of approximately $10,000,000 We are very pleased with the initial momentum we've seen from Gardacore as well as the continued growth of the pipeline. It is also worth noting that our Edge Applications business surpassed a $200,000,000 annual revenue run rate in Q4 and grew 30% for the full year 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 two points from Q4 2020. These strong results were despite foreign exchange fluctuations, which had a negative impact on revenue of $7,000,000 on a sequential basis And negative $10,000,000 on a year over year basis. Non GAAP net income was $243,000,000 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.

Speaker 2

Finally, as Tom mentioned, we had an exceptional year from a cash flow perspective. Moving to capital deployment. During the Q4, we spent approximately $271,000,000 to buy back approximately 2,400,000 shares. Our intention is to continue to buy back shares to offset dilution from employee equity programs over time and to be opportunistic in both M and A And share repurchases. Turning now to the Linode on Slide 21.

Speaker 2

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 $900,000,000 of cash. The transaction will be treated as an asset purchase for tax purposes. 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 $120,000,000 Turning to Slide 22.

Speaker 2

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 $100,000,000 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 a previously communicated goal of CapEx being in the mid teens as a percentage of revenue.

Speaker 2

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 DG revenue.

Speaker 2

For context, our Edge Applications business, which had revenue of approximately $196,000,000 in 2021 and our net storage business, which had revenue of approximately $57,000,000 2021, we'll move to our new compute business. The 3rd 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 $500,000,000 of annual compute revenue in 2023. Turning to Slide 24.

Speaker 2

Before I provide our Q1 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 in 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. 2nd, 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.

Speaker 2

At current spot rates, Our guidance assumes that foreign exchange will have a negative $45,000,000 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. 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.

Speaker 2

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 $896,000,000 to $910,000,000 We're 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 $2,000,000 impact in Q1 revenue compared to Q4 levels and a negative $17,000,000 impact year over year. At these revenue levels, we expect cash gross margins of approximately 76%.

Speaker 2

Q1 non GAAP operating expenses are projected to be $292,000,000 to $296,000,000 We anticipate Q1 EBITDA margins of approximately 43%. We expect non GAAP depreciation expense to be between $123,000,000 to $124,000,000 And we expect non GAAP operating margin of approximately 30% for Q1. Moving on to CapEx. We expect to spend approximately $120,000,000 to $124,000,000 excluding equity compensation and capitalized interest in the Q1. This represents approximately 13% to 14% of anticipated total revenue, which is down approximately 4 points from Q1 2021 levels.

Speaker 2

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 taxes of $38,000,000 to $39,000,000 Based on an estimated quarterly non GAAP tax rate of approximately 14.5%. It also reflects a fully diluted share count of approximately 160 Moving to Slide 26. Looking ahead to the full year, we expect revenue of 3.673 The $3,728,000,000 which is up 6% to 8% year over year as reported or 7% to 9% in constant currency. We expect security revenue growth to be at least 20% for the full year 2022. This includes an expected GardaCore contribution of approximately $50,000,000 to $55,000,000 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 percent and fully diluted share count of approximately 162,000,000 shares.

Speaker 2

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? Thanks, Ed.

Speaker 2

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 Gardacore, 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.

Speaker 2

Yes, thanks. Hi, guys. 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 beyond, I want to make sure I understand That new compute area, the $500,000,000 what kind of growth rate do you expect out of that segment? Thank you. Hey, Sterling, this is Ed.

Speaker 2

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.

Speaker 2

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 the node 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.

Speaker 2

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, I talked about in 'twenty three that I expected that we would be above $500,000,000 in revenue. That sort of gets you to that 30% to 35% kind of growth rate And that business once you get through the acquisition.

Speaker 2

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. Thank you. Yes, it's a great question.

Speaker 2

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 is our customers. We're just getting more and more requests for folks to continue to come with different use cases. Ourselves, we're spending quite a bit on 3rd party cloud today, whether it's through acquisitions or through IT projects.

Speaker 2

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 his 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. 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 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.

Speaker 2

Thank you.

Operator

Our next question comes from Keith Weiss with Morgan Stanley.

Speaker 3

Excellent. Thank you guys for taking the question. Maybe two questions. 1 on the Linode acquisition. I just want to kind of better understand kind of like the buy versus like a partner decision.

Speaker 3

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 1. And then number 2 for Ed, just in looking at FY 'twenty two and the margins Coming down, you had a nice margin performance in Q4 and all throughout 2021. Can you talk to us a little bit about what's going to

Speaker 2

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.

Speaker 2

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

Speaker 4

to take the margin?

Speaker 2

Yes, sure. Yes, sure, Keith. And just to add on that, if I just look at financial profile of the business you 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.

Speaker 2

So to be able to bolt that on, it's immediately accretive, gets The 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 a couple of things going on there.

Speaker 2

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 margin for us. But also we're making investments and keep in mind, You have the full Gardacore business.

Speaker 2

We only had about 2 a little over 2 months In the Q4, so in the Q1, we have a full Gardacor and the cost in the business. And you've got in the middle of the year is when we do Merit increase. That said, 2 things to point out. Number 1, we're going to be that's what we do about 30% in Q1. We've done very well managing costs.

Speaker 2

And then we also told you when we did the acquisition of Gardicore that in 'twenty three, we'd expect to get above 30% margins again. We'll be expanding margins, might be slightly under 30 this year. As I said, somewhere between 29 to 30, but we anticipate to get back above that in 23. Excellent. Thanks so much, guys.

Operator

Our next question comes from James Breen with William Blair.

Speaker 2

Thanks for taking the question. Just looking at

Speaker 5

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.

Speaker 2

Thanks, Steph. This is Ed. I'll take that one. So yes, as far as the renewals go, as we 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.

Speaker 2

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

Speaker 6

a bit in Q1, decline a bit in Q2 because

Speaker 2

I got about half of the renewals already done. And I got about half coming up here in April. And then I

Speaker 6

would expect that revenue to

Speaker 2

start to grow again. It's pretty typical of what you see in the CDN business. We 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.

Speaker 2

So it's very unusual to have this sort of a cluster. 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 products. 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.

Speaker 2

And this is just something that's pretty typical in the CDM business. And where we're seeing the pricing pressure is on the delivery we're not seeing it in the security side, not seeing it in edge apps, 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 is, we start to have these waves of new variants, travel slows down.

Speaker 2

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 retails, 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 there on retail.

Speaker 2

Travel has been driven a bit. And In general, as we get past these renewals, you'll start to see the delivery business improve a bit.

Speaker 3

Great. Thanks.

Operator

Our next question comes from Colby Synesael with Cowen.

Speaker 2

Hi, this is Michael on for Colby. Two questions, if I may. First, following this acquisition, you also did Gardicore. How would you describe the appetite for additional M and A? And as part of that, how does this acquisition impact the way that you're Thinking about additional buybacks, I saw that was a pretty notable step up in the Q4.

Speaker 2

And then one question one other question if I could squeeze it in. With this acquisition, dollars 100,000,000 of revenue coming in and you talked about 15% growth that seems durable,

Speaker 6

How does this change

Speaker 2

the way you're thinking about the long term revenue growth profile for the company? Thank you. 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.

Speaker 2

We probably will do more tech tuck ins and smaller acquisitions. In terms of the buyback, our primary use of cash is for M and A and to buyback equity to Now as I mentioned, that said, we do also opportunistically buyback 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 It's not changing here. Just we saw 2 exceptional opportunities, first with Gardacore and now with Linode.

Speaker 2

Gardacore Really is a huge boost to our enterprise security business, 0 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 $30,000,000 to 35,000,000 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 Gardacore can do, both the visibility it gives customers into their own networks And the ability to mitigate the impact of ransomware. Now in terms of the durability of revenue growth From Linode, in the past, they were doing 15%.

Speaker 2

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. So we're certainly going to try to do that.

Speaker 2

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. Awesome. Thank you for the color. Really appreciate it.

Operator

Our next question comes from James Fish with Piper Sandler.

Speaker 3

Hey, guys. Thanks for the question. Securities grew 22% actually, I'm sorry, 25% constant currency. It seemed 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 on the market has come directly towards SASE and it's been as healthy of a security market as we've probably seen since 2014.

Speaker 3

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 or annual customer metrics you guys typically give in Q4 regarding the individual products in sub segments like an access control?

Speaker 2

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, sadly, technically wouldn't even include microsegmentation. 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.

Speaker 2

So the SASE framework is a small amount of Akamai revenue and with Gardacore growing rapidly, the vast majority of our Security revenue is in the wet 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 toward Sadly, 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 with market leaders And growing at a very fast clip on a good sized number for us. And Ed, maybe you want to take the rest of the question. Yes.

Speaker 2

So, Jim, we don't break this out of the 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%, 0.25% in network security and then Security services of 10 to 15. I can tell you that we achieved all those and exceeded in many cases those metrics. Are there other metrics that we were looking for? I think you mentioned something about customers.

Speaker 3

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 sub segments, maybe you're saving that to the Analyst Day?

Speaker 2

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 So it's about 6% year over year, 2 or more is up to 34.5%, that's up above 3%, 3 or more is up to 20%, And we increased our customer base by about 6% for the year.

Speaker 2

Total customer base is up about 6%. Security penetration is up about 6% year over year.

Speaker 3

If I can squeeze in one more. One knock, 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 for events of sort of graduation and make it more enterprise grade for The Akamai installed base or is it more about taking Akamai down market and be that developer focus that we've been looking for?

Speaker 2

So, yes, 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 So built in many cases managed by the developers. So we really care about a developer friendly solution, but we are going to take this 2 are 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? Sure, Tom.

Speaker 2

I think Tom mentioned earlier, some of our expertise is just building and deploying larger network 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. Building in things like availability zones, VPC, identity access management and then building in compliance like SOC 2 and PCI are really on the core parts of our roadmap 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. 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 We have 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'll have not seen this would be a situation where they migrate From say Linode to 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 We'll be the world's most distributed cloud platform with now market leading solutions in not just delivery and security, but also compute.

Speaker 3

Thanks, guys.

Operator

Our next question comes from Rishi Jaluria with RBC.

Speaker 2

Wonderful. Thanks so much for taking my questions. Just 2, one on Linode and maybe inverse of the last question. Obviously, we have a great traction down market. When we think about the ability 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 applications business.

Speaker 2

Can you talk about your ability to actually take some of your more enterprise big products and actually sell them successfully down market 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 bounced back being sluggish, but I know when we were on this call 3 months ago, one of the concerns was just with Supply chain concerns in the tough comps, e commerce is 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? Thanks.

Speaker 2

I'll take the first question, Ed will take the second. 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 Then 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.

Speaker 2

And as we look at

Speaker 6

the Yes,

Speaker 2

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 potential outcomes with Commerce. I would say that we pretty much attended where we expected. We didn't really bake in a ton of upside for two reasons. One was just uncertainty around supply chain, people potentially ordering earlier in the year.

Speaker 2

But the bigger factor was around the Xoft, the 0 overage. We've been in market now for over 2 years. We've got a pretty high penetration So that we don't see as much of the 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.

Speaker 2

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 year Q4.

Speaker 5

Got it.

Speaker 1

Thank you so much.

Operator

Our next question comes from Fatima Boolani with Citi.

Speaker 4

Good afternoon. Thank you for taking my questions. 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, It was certainly helpful for us just 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 do you expect that mix of traffic to change relative to some of the expectations within the long and medium term guide?

Speaker 4

And then I had a quick follow-up, if I could.

Speaker 2

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?

Speaker 4

That's very helpful. And for Ed, I wanted to talk a little bit about the margin upside in the quarter With the meter 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. Thank you.

Speaker 2

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, did a little bit better on Security, so that drives very high incremental margins in the business.

Speaker 2

The other thing on the cost of goods sold line, the margins came in on the gross margin line a little bit better. Team's 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 it will drive down bandwidth costs. That would be the big thing.

Speaker 2

We're getting good efficiency, starting to see CapEx come down quite a bit. We won't see the depreciation fall off yet. We get a peak Say the next year and a half or so, then it will start to come off. But just around all the different organizations, which is doing really focused on efficiency, and We've seen good flow through and get a little bit of revenue upside.

Speaker 4

Appreciate that detail. Thank you.

Operator

Our next question comes from Alex Henderson with Needham and Company.

Speaker 6

Thank you very much. I was hoping that 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 The software stack within each node or will it be separate nodes in that context?

Speaker 2

I'll start with that and then turn it over to Adam. You want to think of Akamai's platform as hierarchical. There's a core where functions such as storage would live, where there's dozens of locations for Archived storage migrating out all the way to the edge where there's 4000 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 statements, and most all Charity, other than Prolexic, all live on the very edge out in 4,000 locations.

Speaker 2

EdgeWorkers lives out there too. Edge KB lives out there. And the node 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. Yes.

Speaker 2

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 pushed those components further out towards our edge, ultimately culminating in our deep edge where you have Our Chrome V8 engines that can be instantiated on demand right on the Edge itself. So that's our EdgeWorker solution. But you can see kind of a Linode kind of stack like Spanning the entire span of what Tom just described is the core all the way out to the edge.

Speaker 6

If I could follow-up, you talked about the coater centric capabilities of Linode. Can you talk about The degree to which coders are writing to this platform and to that matter to the Akamai Platform, how many covers do you have right into your platform at this point?

Speaker 3

So

Speaker 2

on the Linode platform, they have over 150,000 customers today on their platform writing and deploying On our is that the question?

Speaker 6

To the degree to which the colors are writing to Platform, yes. As opposed to necessarily customers, they assume the customers are actually do some writing.

Speaker 2

That's the customer to play Linode. Yes. They're primarily developers, which is one 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, in some cases, managing those applications. And thus, that developer community becomes appealing appeals through to those enterprise customers right back to Akamai.

Speaker 2

So it's kind of a great system that they have.

Speaker 6

Can you give us the Akamai related data point rolling down the coders or writing to your edge compute capability? I

Speaker 2

don't think I have that stat on hand right now.

Speaker 6

Okay. Thank you very much.

Operator

Our next question comes from Tim Horan with Oppenheimer.

Speaker 3

Thanks, guys. Will it take much Investment to consolidate and integrate 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.

Speaker 2

Sure. So we're 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 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.

Speaker 6

And then can you

Speaker 2

repeat the second half of the question? I think it was on go to market.

Speaker 3

Yes. Just same thing for like customer care and go to market when you happen to invest much to

Speaker 2

Yes. The great thing about the Linode platform is it is very self-service, very frictionless for developers to come on board. They have amazing 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 here 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.

Speaker 2

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. And you mentioned you have

Speaker 3

a very large network, obviously. Do you think you can get into the enterprise private line or global land market or just the overall

Speaker 2

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 this makes a synergy With those customers that want to use both our telco partners and Akamai. Not sure if that's what you were getting at or something Yes. I just want to think Akamai is Providing Internet connectivity to enterprises. That's not our business.

Speaker 2

That's our partners business. Now we do Provide, deputy 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 a we don't provide base connectivity. That would be our partners, which would be the carriers. Thank you.

Operator

Our next question comes from Franklin Louthan with Raymond James.

Speaker 5

Great. Thank you. You mentioned earlier bringing scale to the business here. And I'm just curious what this Strategy is we're bringing scale to compete increasingly with large cloud companies that 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?

Speaker 2

When you think of scale, there's a couple of ways to do 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 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.

Speaker 2

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 to 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 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 for many years and successfully.

Speaker 2

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 That story to be able to have the end to end capability to handle their applications.

Speaker 5

Yes, Brian.

Speaker 6

I was

Speaker 2

going to this doesn't take away from our investment in security. And the 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 $100 plus million company trying to scale to $1,000,000,000 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 want to have access to customers and channel, and we bring all that.

Speaker 2

So this, to me, was a very natural adjacency for us. I look at ourselves and what we're spending in 3rd party cloud and 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, 1 in security, 1 here in cloud.

Speaker 2

And we're very fortunate with our profitability and our cash flow generation to be able to do that.

Speaker 5

So is the end goal to be able to provide some of these cloud computing functions on yourself that would that the large cloud With white label or are you going to be providing aspects that they just can't do themselves in their larger server prime deployments?

Speaker 2

I did 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 in white labeling our services. Of course, the carriers are major channel partners with us today.

Speaker 2

And I think that will increase through the acquisition of Linode. 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.

Speaker 5

Okay. Thank you very much.

Operator

Our next question comes from Rudy Kessinger with D. A. Davidson.

Speaker 3

Great. Thanks for taking my questions, guys. I wanted to continue. Starting off, going back to those customers that are going to have the repricing, You said basically decline first half and then return to growth in the second half. For the year in 2022 over 2021, what's your expectation for that group?

Speaker 3

Are they going to be Slightly down or about breakeven on a growth basis?

Speaker 6

Yes. Good question. So I

Speaker 2

would expect those customers to be Slightly up year over year. So as you decline the 1st 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. There's a potential there you could continue to grow that base of customers.

Speaker 2

So not expecting that this year, but it's possible that we could start to tap into that. Obviously, we have to build a pipeline, get customers lined up, but that's obviously certainly a very target rich group of customers.

Speaker 3

Got it. And then secondly, going back to Darcor's, a pretty substantial outperformance thus far. I think you said $10,000,000 in the quarter. Initial expectation Q4 was 6% to 7% and obviously 50% to 55% expected in 2022 versus 30% to 35% originally. Just what's really driving that upside?

Speaker 3

What's really resonated well with this product, both with the new customers and those that you cross sell?

Speaker 2

Well, obviously, ransomware is a big problem. And we believe that GardaCore 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.

Speaker 2

It's really important The 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, we 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.

Speaker 2

And of course, we have a very large Enterprise sales force that now can bring Gardacor 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.

Speaker 3

Great. Thanks for taking the questions.

Speaker 1

All right, operator. We probably have time for one more question. Thank you.

Operator

This question comes from Jeff Van Rhee with Craig Hallum.

Speaker 2

Jeff, starting the wire. So two quick ones for me. First, I guess on the cross sell back into your base Of the node products, how critical is it to win over the developers in

Speaker 3

your base?

Speaker 2

I mean, obviously, you've got the relationship, maybe you can come and try to 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? Adam, why don't you take that one? Sure.

Speaker 2

I mean, that's one 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 application 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 tool. 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 simple, easy to use and has great documentation.

Speaker 2

Yes. And you may have mentioned it if I missed it, apologies. But in terms Customer base, how many customers, what's an average spend per year for the Linode base and any particular concentrations in the base Some vertical or other segmentation that matters? So the Linode customer base is around 100 and 1,000 customers, we don't break them down like that, at least not yet. But we can tell you, I think Ed mentioned this earlier on the call, that the larger segment of their customer base is growing Much faster than the very, very small developers, but we don't give out the ARPU yet on the customer base.

Speaker 2

Yes. Just to add, there's no customer concentration risk In terms of any significant customers making up a large percentage of the revenue and early with Adam who mentioned that from a go to market perspective, they Didn't focus on selling into large enterprises. That's where we can bring in that synergy. So I'd expect that over time that customer base to And look a lot more like our customer base. And obviously, that small developer base will just continue to grow as we continue to market and that sort of thing.

Speaker 2

But It also opens up opportunities in some of our underserved verticals that when you think about the spend in certain places that may not have as large of websites The web presence, but they're spending an awful lot in this area. So, I do expect that customer base to change. When we get to Analyst Day, we'll I'll try to break that down a little bit for you, give you some views in terms of how we're thinking about growth in the future. And then as we get some months under our belt of operating the As we come up with new metrics that we think are helpful, we'll obviously bring them to the table and disclose them for you. Okay.

Speaker 2

Good. Got it. Thanks, Ed.

Speaker 1

Okay. Well, thank you, everyone. In closing, we will be presenting at Several investor conferences and roadshows throughout the rest of the Q1. Details of these can be found in the Investor Relations section of akamai.com.

Speaker 2

Thank you for joining us.

Speaker 1

And all of us here at Akamai wish you continued good health, and we wish you a happy evening. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Akamai Technologies Q4 2021
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