Akamai Technologies, Inc. is a leading cybersecurity and cloud computing company that has been at the forefront of powering and protecting business online for over two decades. Founded in 1998, Akamai has grown from a content delivery network (CDN) pioneer to a diversified technology powerhouse, offering a comprehensive suite of solutions that span security, compute, and delivery.
Company History and Evolution
Akamai's journey has been one of constant innovation and strategic transformation. The company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. In its early years, Akamai established itself as a pioneer in the content delivery network (CDN) industry, building a massively distributed edge platform to enable the fast and secure delivery of digital content and applications. However, the company faced significant challenges during the dot-com bust in the early 2000s, which forced it to lay off a substantial portion of its workforce.
Despite these early setbacks, Akamai persevered and continued to evolve its business. In the late 2000s and early 2010s, the company expanded its offerings beyond pure CDN services, moving into areas such as web application security, DDoS mitigation, and cloud computing. These diversification efforts helped Akamai reduce its reliance on its core CDN business and better position the company to capitalize on emerging trends in the internet infrastructure market.
Strategic Acquisitions
To further enhance its capabilities and expand its customer base, Akamai has made strategic acquisitions over the years. Notable acquisitions include Nominum, a provider of DNS services and security solutions, in 2017, and Linode, a cloud computing infrastructure-as-a-service (IaaS) provider, in 2019. These acquisitions have played a crucial role in strengthening Akamai's position in the security and cloud computing spaces, which have become increasingly important parts of the company's business.
Current Business Overview
Today, Akamai's solutions are critical to the digital infrastructure of businesses across a wide range of industries. The company operates in three main product segments: Security, Delivery, and Compute.
Security Solutions are designed to protect businesses online by keeping infrastructure, websites, applications, and users safe. This segment has been a significant contributor to Akamai's revenue growth, with revenue increasing 13.8% and 16.5% for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. The growth in security solutions revenue was driven by strong performance in key products within Akamai's security portfolio, including its segmentation and web application solutions.
Delivery Solutions are designed to enable businesses to operate online, including media delivery and web performance. This segment has seen a decline in revenue, with a 15.9% decrease in the third quarter and a 13.3% decrease in the first nine months of 2024 compared to the same periods in the prior year. The decrease in delivery solutions revenue was attributed to economic and geopolitical headwinds impacting Akamai's customers, resulting in moderation of traffic growth rates and continued downward pricing pressure on contract renewals. Additionally, a large social media customer has taken steps to optimize its platform and reduce reliance on U.S. providers, including the use of a do-it-yourself component, which has negatively impacted traffic on Akamai's network and revenue from this segment.
Compute Solutions include cloud computing, edge applications, cloud optimization, and storage. This segment has been a strong growth driver for the company, with revenue increasing 28.0% and 25.4% for the three and nine months ended September 30, 2024, respectively, compared to the same periods in the prior year. The growth in compute solutions revenue was attributed to increased sales of Akamai's cloud optimization and other compute products to both new and existing customers.
Financials
Financially, Akamai has demonstrated strong performance, with revenue reaching $2.97 billion in 2024, up 5.5% year-over-year. The company's security and compute solutions have been the primary growth drivers, accounting for 69% of total revenue in the fourth quarter of 2024. Security revenue grew 14% year-over-year, while compute revenue surged 24%.
In the most recent quarter, Akamai reported revenue of $1,019,939,000, net income of $139,905,000, operating cash flow of $343,788,000, and free cash flow of $180,929,000.
Geographically, revenue from Akamai's international operations has continued to grow, accounting for 47.8% and 48.0% of total revenue for the three and nine months ended September 30, 2024, respectively. However, the strengthening of the U.S. dollar has had a negative impact on Akamai's reported revenue, with foreign currency exchange rates unfavorably impacting revenue by $2.7 million and $16.2 million for the three and nine-month periods, respectively, compared to the same periods in the prior year.
However, Akamai has not been immune to the challenges facing the broader technology industry. The company's delivery revenue, which has historically been a significant contributor to its top line, declined 18% year-over-year in the fourth quarter. This was primarily due to the ongoing optimization and DIY strategies of some of Akamai's larger customers, as well as the impact of foreign exchange fluctuations.
Liquidity
Despite these headwinds, Akamai remains focused on its long-term growth strategy. The company is investing heavily in its go-to-market capabilities, with plans to increase the ratio of "hunters" to "farmers" in its sales force and add more specialized sellers to support its security and cloud computing offerings. Additionally, Akamai is working to optimize its sales operating model, account coverage framework, and pricing strategy to drive greater top-line growth.
Future Outlook
Looking ahead, Akamai is projecting revenue of $4.0 billion to $4.2 billion for the full year 2025, representing flat to 5% growth as reported and 1% to 6% growth in constant currency. The company expects its security revenue to grow approximately 10% in constant currency, while its compute revenue is forecasted to increase by around 15% in constant currency.
For Q1 2025, Akamai is guiding for revenue in the range of $1 billion to $1.02 billion, up 1% to 3% as reported or 3% to 5% in constant currency. The company expects Q1 2025 non-GAAP EPS in the range of $1.54 to $1.59, down 6% to 3% as reported and down 2% to up 1% in constant currency.
For the full year 2025, Akamai expects non-GAAP EPS in the range of $6 to $6.40. The company is targeting a non-GAAP operating margin of approximately 28% for 2025. Akamai also expects their cloud infrastructure services ARR to grow 40% to 45% in constant currency in 2025.
Akamai's long-term outlook remains positive, as the company believes it can achieve a compounded annual growth rate (CAGR) of approximately 10% in its security business and 20% in its compute business over the next three to five years, with the potential to reach $3 billion in security revenue and $1 billion in compute revenue by the end of the decade.
Risks and Challenges
Risks to Akamai's business include continued pricing pressure in the delivery market, potential regulatory changes affecting content and data practices, and the ongoing challenge of integrating and extracting value from its acquisitions. However, the company's strong competitive position, diversified product portfolio, and relentless focus on innovation position it well to navigate these challenges and capitalize on the significant growth opportunities in the cybersecurity and cloud computing markets.
Conclusion
In conclusion, Akamai Technologies is a pioneering technology company that has successfully transformed itself from a CDN provider to a comprehensive cybersecurity and cloud computing solution provider. With a robust product suite, a global network, and a clear long-term strategy, Akamai is well-positioned to continue powering and protecting businesses online in the years to come. The company's focus on expanding its security and compute offerings, while managing costs and optimizing its global operations, will be crucial in navigating the current economic and geopolitical landscape and delivering sustained financial performance.