Akamai(AKAM) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 2024 revenue grew to $980 million, up 5% YoY as reported and 6% in constant currency [6] - Non-GAAP operating margin was 29% [7] - Non-GAAP EPS was$ 1.58, up 6% YoY and 9% in constant currency [7] - Security revenue reached $499 million, up 15% YoY and 16% in constant currency [9] - Compute revenue grew to$ 151 million, up 23% YoY and 24% in constant currency [17] - Delivery revenue declined to $329 million, down 13% YoY and 12% in constant currency [23] - International revenue was$ 471 million, up 3% YoY and 5% in constant currency, representing 48% of total revenue [24] - Non-GAAP net income was $243 million [25] - Cash, cash equivalents, and marketable securities totaled approximately$ 1.9 billion as of June 30 [25] Business Line Performance - Delivery accounted for one-third of revenue ( $329 million), down from two-thirds five years ago [8] - Security now represents the majority of revenue, with$ 499 million in Q2, up 15% YoY [9] - Compute revenue grew to $151 million, driven by enterprise adoption and new capabilities [17] - Security and compute combined accounted for 66% of total revenue, growing 17% YoY [23] Market Performance - International revenue grew 3% YoY, with foreign exchange fluctuations negatively impacting revenue by$ 10 million YoY [24] - The Paris Summer Games are expected to drive an additional $3-4 million in Q3 revenue [27] - India's elimination of its digital service tax may result in a slight increase in the effective non-GAAP tax rate [27] Strategic Direction and Industry Competition - The company is shifting focus from delivery to security and compute, which now generate two-thirds of revenue [20] - The acquisition of No Name Security strengthens the company's position in the fast-growing API security market, which is expected to grow at a CAGR of 34% to nearly$ 1 billion by 2027 [13] - The company's distributed cloud platform, with over 4,100 points of presence, provides better performance, economics, and reliability compared to hyperscalers [16] - The company is leveraging its delivery platform to offer compute at a lower price point than hyperscalers, targeting enterprise customers [73] Management Commentary on Operating Environment and Future Outlook - The macroeconomic environment remains challenging, with geopolitical tensions potentially impacting the business [28] - The company expects Q3 revenue in the range of $988 million to$ 1.008 billion, up 2-4% YoY [28] - Full-year 2024 revenue is expected to grow 4-5% YoY, with security revenue growth of 15-17% in constant currency [30] - The company aims to maintain a 30% operating margin, with potential upside as compute and security businesses expand [21] Other Important Information - The company repurchased 1.4 million shares for $128 million in Q2 and has$ 2.3 billion remaining in share buyback authorizations [25] - The No Name acquisition is expected to add $18-20 million in revenue for 2024 but will be dilutive to non-GAAP EPS by$ 0.04-0.05 [26] - The company expects to reduce third-party cloud spending by over $100 million annually by migrating to its own platform [20] Q&A Session Summary Question: Trajectory of Akamai Connected Cloud - The company expects to reach$ 100 million ARR by the end of 2024 and is optimistic about strong growth driven by enterprise customers [34] Question: Delivery Business Headwinds - The headwinds in the delivery business are not expected to persist long-term, with traffic growth likely to continue at a slower rate [36] Question: Full-Year Guidance and Expense Savings - The company has seen better-than-expected business performance, with $100 million in savings from migrating to its own cloud platform [39][41] Question: Guardicore Zero Trust Platform - The Guardicore platform integrates micro-segmentation, zero trust network access, and threat hunting, with strong channel adoption [45][48] Question: AI Workloads on Compute Platform - AI workloads are currently a small fraction of ARR but have significant growth potential, particularly for focused applications [57] Question: Use Cases for Connected Cloud - Media customers are the largest segment, but the platform is also being used for observability, security, and AI applications [62][63] Question: Compute Customer Base - Growth is coming from both existing and new customers, with media companies being the largest segment [66][67] Question: Delivery Revenue Decline - The decline is attributed to tough comparisons from previous acquisitions and lower traffic growth, not a shift to low-cost providers [70][98] Question: Security Growth Rate - Growth has been volatile due to new product introductions, but API security and Guardicore are expected to ramp quickly [94][96] Question: Muted Q4 Seasonality - Weaker trends in retail and gaming are expected to continue, with no significant traffic growth anticipated [100]