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01/10 16:56
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Akamai's earnings call reveals strong growth prospects in security and compute revenues, with significant ARR growth expectations. The Q&A section highlights a positive competitive landscape shift, stable pricing, and increasing demand for API security. Despite some concerns about revenue recognition timing, the overall sentiment is bolstered by new product launches, strong customer interest, and strategic acquisitions like Edgio. The guidance for revenue and EPS also indicates a positive outlook, supporting a positive stock price movement prediction.
Revenue Revenue grew to $1.043 billion, up 7% year-over-year as reported and up 6% in constant currency. The growth was driven by stabilization of revenue from the delivery product line and solid growth in security and compute product lines.
Non-GAAP Operating Margin Non-GAAP operating margin was 30%. This was supported by higher-than-expected revenue and lower-than-expected bandwidth costs.
Non-GAAP Earnings Per Share (EPS) Non-GAAP EPS came in at $1.73, up 9% year-over-year as reported and in constant currency. This was $0.15 above the high end of the guidance range, driven by higher revenue, lower bandwidth costs, higher interest income, and lower share count due to stock buybacks.
Cloud Infrastructure Services (CIS) Revenue CIS revenue in Q2 was $71 million, growing at 30% year-over-year as reported and 29% in constant currency. Growth was driven by customer demand for improved scalability, performance, and cost reduction, particularly for AI applications.
Compute Revenue Compute revenue was $171 million, up 13% year-over-year as reported and in constant currency. Growth was driven by strength in cloud infrastructure services.
Security Revenue Security revenue was $552 million, up 11% year-over-year as reported and 10% in constant currency. Growth was driven by strong demand for Guardicore Segmentation and API security solutions.
Delivery Revenue Delivery revenue was $320 million, down 3% year-over-year as reported and down 4% in constant currency. Despite the decline, performance was above expectations due to improvements in pricing and traffic growth.
International Revenue International revenue was $516 million, up 10% year-over-year or 8% in constant currency. This represented 49% of total revenue in Q2.
Non-GAAP Net Income Non-GAAP net income was $251 million, driven by higher-than-expected revenue, lower bandwidth costs, and other factors.
CapEx Q2 CapEx was $214 million, representing 21% of revenue.
Cloud Infrastructure Services (CIS): Revenue in Q2 was $71 million, growing 30% year-over-year. Projected faster growth for the remainder of the year due to large deals signed earlier.
AI Gateway Solution: Introduced to address challenges in deploying large language models, improving speed, security, and cost-efficiency.
Firewall for AI: New security solution to combat prompt abuse and model compromise.
Geographic Expansion: Revenue from international markets was $516 million, up 10% year-over-year, representing 49% of total revenue.
Revenue Growth: Total revenue grew to $1.043 billion, up 7% year-over-year.
Security Revenue: Security revenue was $552 million, up 11% year-over-year, driven by demand for Guardicore Segmentation and API security solutions.
Compute Revenue: Compute revenue was $171 million, up 13% year-over-year, with strong performance in cloud infrastructure services.
Go-to-Market Investments: Increased sales capacity and channel partnerships to drive new business and revenue growth.
Board Appointments: Added two new directors with expertise in cloud computing, cybersecurity, and AI to support innovation and growth.
Macroeconomic Trends: Potential adverse impacts from macroeconomic trends were mentioned as a risk factor that could affect revenue and earnings guidance.
Integration of Acquisitions: Challenges related to the integration of acquisitions were highlighted as a potential risk to achieving strategic objectives.
Geopolitical Developments: Geopolitical developments were identified as a risk factor that could materially impact the company's results.
Ransomware and Cybersecurity Threats: Ransomware attacks and other cybersecurity threats remain a significant financial and reputational risk for enterprises, with examples of major financial losses from attacks on retailers.
Gross Margin Pressure: Increased colocation and related costs, as well as the impact of lower-margin qualified compute partner sales, are expected to pressure gross margins.
Go-to-Market Investments: Investments in sales and channel organization are expected to lower operating margins in the second half of the year before delivering long-term benefits.
Tax Legislation Changes: The potential impact of new tax legislation, including modifications to the international tax framework, was noted as a factor requiring evaluation.
Revenue Projections: For Q3 2025, Akamai projects revenue in the range of $1.035 billion to $1.050 billion, representing a 3% to 4% increase as reported and 2% to 4% in constant currency compared to Q3 2024. For the full year 2025, revenue is expected to be between $4.135 billion and $4.205 billion, reflecting a 4% to 5% increase as reported and 3% to 5% in constant currency.
Compute Revenue Growth: Compute revenue is expected to grow at approximately 15% in constant currency for the full year 2025, with cloud infrastructure services (CIS) revenue growth accelerating throughout the year and into 2026. CIS ARR is projected to grow by 40% to 45% year-over-year in constant currency by the end of 2025.
Security Revenue Growth: Security revenue is projected to grow by approximately 10% in constant currency for 2025. Combined ARR for Zero Trust enterprise and API security solutions is expected to increase by 30% to 35% year-over-year in constant currency for 2025.
Delivery Revenue: Delivery revenue is expected to remain stable, with improvements in pricing and traffic growth observed in the first half of 2025.
Capital Expenditures: For Q3 2025, CapEx is projected to be $227 million to $237 million, approximately 22% of total revenue. For the full year 2025, CapEx is expected to be around 20% of total revenue.
Non-GAAP Operating Margin: Non-GAAP operating margin is projected to be approximately 28% for Q3 2025 and 29% for the full year 2025.
Non-GAAP Earnings Per Share (EPS): For Q3 2025, non-GAAP EPS is expected to range from $1.62 to $1.66. For the full year 2025, non-GAAP EPS is projected to be between $6.60 and $6.80.
Foreign Exchange Impact: Foreign exchange fluctuations are expected to have a positive $3 million impact on Q3 2025 revenue and a positive $13 million impact on full year 2025 revenue.
Stock Buyback Activity: In the second quarter, Akamai spent approximately $300 million to buy back approximately 3.9 million shares. Year-to-date, the company spent $800 million to buy back approximately 10 million shares. Akamai ended the second quarter with approximately $1.2 billion remaining on its current repurchase authorization. The company intends to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases when market and business conditions warrant.
The earnings call reflects a positive sentiment with strong growth projections in compute and security revenues, a strategic partnership with NVIDIA, and a stable delivery business with pricing improvements. The Q&A session highlights opportunities in AI and API security, with strong demand and potential large deals in the pipeline. Despite the lack of share repurchases in Q3, the overall financial health and strategic positioning indicate a positive outlook for the stock price over the next two weeks.
Akamai's earnings call reveals strong growth prospects in security and compute revenues, with significant ARR growth expectations. The Q&A section highlights a positive competitive landscape shift, stable pricing, and increasing demand for API security. Despite some concerns about revenue recognition timing, the overall sentiment is bolstered by new product launches, strong customer interest, and strategic acquisitions like Edgio. The guidance for revenue and EPS also indicates a positive outlook, supporting a positive stock price movement prediction.
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