Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Akamai Technologies Inc (NASDAQ:AKAM) reported strong Q4 2024 performance with revenue of $1.02 billion and non-GAAP EPS of $1.66, exceeding guidance.
• Security revenue surpassed $2 billion in 2024, growing 16% year over year, marking a significant milestone.
• Cloud computing revenue grew 25% over 2023, with cloud infrastructure services revenue increasing by 32%.
• The company signed its largest Guardicore deployment to date and achieved significant growth in API security solutions.
• Akamai Technologies Inc (NASDAQ:AKAM) anticipates continued strong growth in cloud infrastructure services, projecting a 40% to 45% ARR growth in 2025.

Negative Points

• Delivery revenue declined by 18% year over year, although there are signs of stabilization.
• The company faces a headwind from its largest customer pursuing a DIY strategy, impacting overall revenue growth.
• Akamai Technologies Inc (NASDAQ:AKAM) expects a 15% growth in cloud computing solutions in 2025, indicating a slowdown compared to previous growth rates.
• Foreign exchange fluctuations negatively impacted revenue and non-GAAP EPS expectations.
• The company anticipates increased capital expenditures in 2025, partly due to infrastructure builds for a large cloud infrastructure services contract.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with AKAM.

Q: Can you provide more details on the large cloud deal and the nature of workloads the customer is bringing over? Is it coming from a hyperscaler? A: (Tom Leighton, CEO) The customer has been using substantial cloud infrastructure services at Akamai for various media applications and will increase that usage. They have special needs in Scandinavia, and we are building a data center there to handle substantial applications throughout Europe. This involves both normal service usage and a special build-out for them.

Q: Regarding your largest customer, is the $60 million headwind due to their DIY strategy or political challenges? How does this affect your operating margins? A: (Tom Leighton, CEO) The headwind is primarily due to their DIY buildout. Political challenges in the US are a factor, but our five-year agreement mitigates exposure. If they are banned in the US, we would lose about $50 million in US business, but the minimum commitments reduce this risk. (Ed McGowan, CFO) Margin expansion will come from a shift towards security and compute, and operating leverage as revenue grows.

Q: Can you discuss the changes in your go-to-market strategy and how far along you are in this process? A: (Tom Leighton, CEO) This is a two-year process, and we are in the beginning stages. We've increased the number of hunters and specialized sales teams. We are working on pricing structure changes and field segmentation. The transformation aligns with our shift from a delivery company to one focused on security and cloud infrastructure services.

Q: What is your outlook for retaining the TEGO contracts, and do you expect significant churn? A: (Ed McGowan, CFO) We've completed the migration, and the edge network is shut down. We don't anticipate significant churn from the current customer base. We were selective in the customers we took on, focusing on those that align with our business strategy.

Q: How do you plan to minimize disruption from changes in your sales strategy, and what are your assumptions for 2025? A: (Tom Leighton, CEO) We aim to avoid account breakage by not doing everything at once. This is a two-year journey, adding specialized resources for new products. We are working with a consulting firm to ensure minimal disruption and maximize productivity.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.