Overview of Akamai’s Financial Performance

Akamai, a leading provider of cloud computing and security solutions, has reported its financial results for the first quarter of 2025. The company’s management has provided an in-depth discussion and analysis of Akamai’s financial condition and results of operations.

Akamai’s financial success is primarily driven by its ability to build recurring revenue commitments, increase traffic on its global network, and continue developing and scaling its cloud computing and security solutions to meet the needs of enterprises. The company’s revenue is also impacted by customer renewals, pricing, adoption of new offerings, and usage of cloud services.

Revenue Trends

Akamai’s revenue for the first quarter of 2025 increased by 3% compared to the same period in 2024. This growth was primarily driven by increased sales of security and cloud computing solutions, which now account for over two-thirds of the company’s total revenue.

However, the company has observed several trends that have impacted its revenue:

1. Moderation in Traffic Growth: Akamai and the industry as a whole are experiencing slower growth in network traffic compared to previous years. This is particularly evident in certain verticals, such as media and gaming, where customers have optimized their traffic to manage business challenges amid global economic and geopolitical headwinds.

2. Pricing Pressure: The prices paid by some of Akamai’s delivery and security customers have declined in recent years due to competition, negatively impacting the company’s revenue growth rates. Akamai has been able to mitigate this by upselling additional solutions to existing customers.

3. International Growth: Revenue from Akamai’s international operations continues to grow, particularly from new customer acquisition and cross-selling of solutions. However, the company’s reported revenue is negatively impacted when the U.S. dollar strengthens and benefits when the U.S. dollar weakens.

4. Quarterly Variations: Akamai has experienced variations in certain types of revenue from quarter to quarter, which can be attributed to factors such as the timing of large customer contract renewals, purchases of custom solutions or licensed software, and the nature and timing of software and gaming releases by customers.

Expense Trends

Akamai’s level of profitability is impacted by its expenses, including direct costs to support revenue, such as bandwidth and co-location costs. The company has observed the following trends related to its profitability:

1. Co-location Costs: Co-location costs, which include energy to power the network, are a significant portion of Akamai’s cost of revenue. As the company continues to build out new compute locations, it has entered into longer-term leases with financial commitments to achieve more favorable unit economics. However, the costs of these commitments are expensed before the compute locations are fully utilized, which can impact profitability.

2. Network Bandwidth Costs: Network bandwidth costs are also a significant portion of Akamai’s cost of revenue. The company has historically been able to mitigate increases in these costs through investment in internal-use software development to improve the performance and efficiency of its network.

3. Network Build-out and Supporting Service Costs: These costs, which include maintenance, supporting services, and partner program costs, have increased in recent years due to the company’s network expansion, particularly the build-out of its compute platform. Akamai is focused on effectively managing these costs and continuing to migrate third-party cloud services to its own compute platform.

4. Payroll and Related Costs: Akamai’s employees are core to its operations, and payroll and related costs, including stock-based compensation, are the company’s largest expense. Akamai is focused on remaining disciplined in allocating resources to support its faster-growing security and cloud computing solutions, while maintaining operational efficiencies to mitigate the rising cost of talent.

5. Depreciation Expense: Depreciation expense related to Akamai’s network equipment has increased due to the company’s investments in its network, particularly as part of building out its compute infrastructure. Akamai is also experiencing an increase in certain server component costs that support the continued build-out of its compute platform.

6. Foreign Currency Exposure: Growth in Akamai’s international operations has incrementally increased its exposure to foreign currency fluctuations. The company’s expenses are positively impacted when the U.S. dollar strengthens and negatively impacted when the U.S. dollar weakens.

Global Economic Conditions

Akamai, along with its customers, continues to navigate through a period of global macroeconomic and geopolitical uncertainty, including fluctuating inflation, regulatory policies, economic and political uncertainty, decreased consumer confidence, pressure on prices during contract renewals, uncertain energy supplies, heightened geopolitical tensions, potential supply chain disruptions, changes in tax laws, and elevated interest rates. To the extent these conditions continue, they may adversely affect Akamai’s business, operations, and financial results.

Results of Operations

Akamai’s revenue for the first quarter of 2025 increased by 3% compared to the same period in 2024, primarily due to continued growth in sales of security and cloud computing solutions, partially offset by a decline in revenue from delivery solutions.

The increase in security solutions revenue was driven by growth in sales of key products in Akamai’s security solutions portfolio, including web application, API security, and Guardicore segmentation solutions.

The decrease in delivery solutions revenue was due to continued downward pricing of contract renewals, which the company believes has been influenced by the economic and geopolitical headwinds its customers are facing. These headwinds have also caused a large social media customer to increase its focus on cost optimization and “do-it-yourself” solutions, reducing traffic on Akamai’s network and negatively impacting delivery revenue.

The increase in cloud computing solutions revenue was due to growth in sales of cloud computing products, including cloud optimization solutions, to new and existing customers.

Akamai’s cost of revenue increased by 6% for the first quarter of 2025 compared to the same period in 2024, primarily due to higher co-location fees and depreciation of network equipment as a result of investment in the company’s network, particularly for the build-out of its compute platform. Additionally, network build-out and supporting services costs increased due to partner program costs related to the growth of Akamai’s cloud computing solutions. These increases were partially offset by lower bandwidth fees and a decrease in third-party cloud costs as the company continues to migrate services to its own compute platform.

Research and development expenses increased by 6% for the first quarter of 2025 compared to the same period in 2024, primarily due to higher stock-based compensation and payroll and related costs as a result of headcount growth from Akamai’s strategic initiatives.

Sales and marketing expenses remained flat for the first quarter of 2025 compared to the same period in 2024, as lower payroll and related costs due to the company’s go-to-market transformation initiative were offset by an increase in stock-based compensation.

General and administrative expenses increased by 2% for the first quarter of 2025 compared to the same period in 2024, primarily due to higher stock-based compensation, partially offset by lower payroll and related costs.

Akamai’s non-GAAP income from operations, which excludes certain non-cash and non-recurring items, increased by 5% for the first quarter of 2025 compared to the same period in 2024, reflecting the company’s focus on managing costs and driving operational efficiency.

Liquidity and Capital Resources

As of March 31, 2025, Akamai had $1.3 billion in cash, cash equivalents, and marketable securities. Factoring in the company’s convertible senior notes due in May 2025, Akamai’s net cash position was $194.3 million.

Akamai’s cash provided by operating activities decreased for the first quarter of 2025 compared to the same period in 2024, primarily due to timing of customer collections, payroll funding, severance payments related to a restructuring action, and higher income tax payments.

The company’s cash provided by (used in) investing activities increased for the first quarter of 2025 compared to the same period in 2024, primarily due to an increase in maturities and sales of marketable securities, which were not reinvested in order to repay the $1,150.0 million convertible senior notes due in May 2025.

Cash used in financing activities increased for the first quarter of 2025 compared to the same period in 2024, primarily due to an increase in repurchases of Akamai’s common stock as part of the company’s $2.0 billion share repurchase program authorized in May 2024.

Akamai expects its current cash, cash equivalents, and marketable securities balances, forecasted cash flows from operations, and access to additional liquidity from its revolving credit facilities to be sufficient to meet its foreseeable cash needs for at least the next 12 months.

Outlook and Conclusion

Akamai’s financial performance in the first quarter of 2025 reflects the company’s continued focus on driving growth in its security and cloud computing solutions, while managing costs and operational efficiency. However, the company is navigating through a period of global economic and geopolitical uncertainty, which has impacted its customers and resulted in moderation of traffic growth, pricing pressure, and increased costs in certain areas.

Going forward, Akamai will need to continue to effectively manage its costs, particularly in areas such as co-location, network bandwidth, and network build-out, to maintain or improve its current levels of profitability. The company will also need to focus on expanding its security and cloud computing solutions portfolios to drive future revenue growth and offset any potential declines in its delivery solutions business.

Overall, Akamai’s strong financial position, with a healthy balance sheet and access to additional liquidity, provides the company with the flexibility to navigate the current economic and geopolitical environment and continue investing in strategic initiatives to support its long-term growth and success.