Akamai's Q4 2024 revenues reached $1 billion, up 3% year-over-year, with security and compute revenue representing 69% of total revenue, growing 14%, 24% y-o-y, respectively - showcasing the company's evolution from a content delivery network (CDN) provider to a comprehensive cloud and security solutions provider. These high-growth segments are effectively offsetting the expected decline in the traditional delivery business, which fell 18% as the CDN market commoditizes. Its GAAP EPS was $0.91, down 12% y-o-y, and non-GAAP EPS of $1.66, down 2% y-o-y. While GAAP operating margins contracted 4 percentage points to 15%, non-GAAP operating margins remained relatively stable at 29%, suggesting that the margin pressure is largely related to investment in growth initiatives and transformation costs rather than fundamental business deterioration. The company's robust cash flow generation, at 34% of revenue in Q4, provides ample resources for both strategic investments and shareholder returns, as evidenced by the $557 million spent on share repurchases in 2024.
The company expects Q1 revenues to range between $1.0 billion to $1.02 billion and adjusted EPS to lie in the range of $1.54 to $1.59. For the full-year, the company is anticipating revenue to come between $4.0 billion to $4.2 billion, compared to $3.99 billion in FY 2024. In addition, it expects adjusted EPS in the range of $6.00 to $6.40.
In May 2024, Akamai acquired digital security company, Noname Security for about $450 million. Noname is one of the top Application Programming Interface security vendors. API security is a growing market, given that APIs - which are essentially software interfaces enabling communication between programs - handle crucial data and are attractive targets for attackers. Akamai has been seeing strong demand in this space, aided by its prior acquisition of Neosec another API security player. IDC Research predicts that the API security market will expand at an annual rate of 34% to nearly $1 billion by 2027.
Akamai has been increasingly doubling down on the cloud computing space in recent quarters, taking on the likes of Amazon, Alphabet, and Microsoft. Akamai could see an upside if it executes well in the computing market which is sizeable and lucrative. Akamai has a network of 350,000 edge servers, across 4,300 locations, which are located away from metropolitan centers, giving the company considerable geographic scale.
Akamai Technologies is a global content delivery network and cloud services provider, focused on improving the speed, reliability, and security of online content and applications. The company is estimated to deliver between 15-30% of the global web traffic. Many popular websites use Akamai for content delivery, which means that some of the content you view when visiting these sites is delivered from a nearby Akamai server, rather than the company's servers.
We believe the Security Division is the more valuable segment within Akamai, given its higher revenue base ($2.04 billion in 2024, compared to $1.32 billion for the Delivery business). Moreover, the division has also been growing faster, averaging a growth rate of about 15% over the last two years, compared to the delivery division, which is declining.
Akamai's value proposition has evolved beyond being the fastest content delivery network. As competitors grow increasingly capable of fast content delivery at similar prices, Akamai has positioned itself as a full-service provider -- touting its ability to offer multiple value-added services, such as the delivery of targeted advertising and cloud-based security for its customers.
Media content is rising at a significant pace as a greater amount of video moves online and video quality increases (for example, HD video). Some of the services that are stimulating this trend are Netflix, Hulu, and YouTube. Although growing media demand is an opportunity, it is also a source of gross margin pressure, since one of Akamai's largest costs is the cost of bandwidth to deliver data. Akamai passes on some of these costs to customers in the form of a bandwidth usage-based pricing structure; however, Akamai's pricing will be under pressure from volume discounts and competition from other content delivery networks.
Akamai has historically charged premium prices to its customers for fast and secure delivery of its web content. However, the company is increasingly competitive on pricing, particularly on video content, to attract more customers and traffic to its network. In several deals, it has even outbid its competitors on price. This is likely to win more customers for Akamai but may put pressure on margins.
