Summary
Akamai Technologies opened fiscal 2023 with revenue growth but sharply lower profit. Revenue for the quarter ended March 31, 2023 was $915.7 million, up 1.3% from $903.6 million in the prior-year quarter. Constant currency revenue rose 3.6%. Security remained the largest revenue category, and security plus compute accounted for over half of total revenue. Delivery revenue fell as traffic growth slowed among large customers and renewals pressured pricing. Compute revenue rose, helped by the Linode acquisition. International operations generated 48.3% of revenue, and foreign currency movements reduced revenue by $20.8 million. The company said traffic growth rates should improve for the remainder of 2023 compared with last year, though economic uncertainty could change that.
Profitability weakened. Operating income for the quarter was $126.6 million, down 26.9% from $173.3 million in the prior-year quarter. Operating margin fell to 13.8% from 19.2%, a drop of 5.4 percentage points. Net income was $97.1 million, down 27.2% from $133.4 million. Diluted EPS was $0.62, down from $0.82. The GAAP results included a restructuring charge and higher cost of revenue. On a non-GAAP basis, income from operations was $263.8 million, down from $270.1 million, and non-GAAP operating margin was 28.8% compared with 29.9%. Non-GAAP net income was $218.3 million, and non-GAAP net income per diluted share was $1.40 compared with $1.39. Adjusted EBITDA was $375.7 million, and Adjusted EBITDA margin was 41.0% compared with 43.3%.
Cash generation held up. Operating cash flow for the quarter was $233.5 million, up 5.0% from $222.5 million in the prior-year quarter. Capital expenditures were $141.7 million, up 177.8% from $51.0 million, as the company invested in compute infrastructure. Deferred revenue was $140.9 million, up 0.9% from $139.7 million. Remaining performance obligations were $3.30 billion, up 3.1% from $3.20 billion. The company ended the quarter with $1.1 billion in cash, cash equivalents and marketable securities. It repurchased 4.6 million shares at a weighted average price of $76.52 for $348.6 million, leaving $0.8 billion available under its repurchase authorization. In April 2023, it borrowed $90.0 million under its revolving credit agreement. The increase in operating cash flow came from lower bonus payouts and better collections, partly offset by lower profitability and higher tax payments.
Management's outlook in the 10-Q points to rising costs for the remainder of fiscal 2023. The company expects cost of revenue to increase, especially co-location costs tied to the compute build-out. Research and development, sales and marketing, and general and administrative expenses are all expected to increase. Stock-based compensation is expected to rise because of performance-based compensation plans and a shift from a cash-based program to a stock-based program. Amortization of acquired intangible assets is expected to be about $48.0 million for the remainder of 2023, then $59.9 million, $62.4 million, $58.0 million and $44.8 million in 2024, 2025, 2026 and 2027. The Ondat and Neosec acquisitions are expected to be slightly dilutive to earnings per share.
Risks remain elevated. Macroeconomic and geopolitical conditions continue to affect the business. Inflation, recession concerns, supply chain challenges, uncertain energy supplies, foreign exchange fluctuations and rising interest rates all weigh on customers. Akamai has experienced elongated sales cycles and expects them to continue in 2023. Traffic growth rates are impacted by economic headwinds, and delivery revenue faces pricing pressure from competition and contract renewals. The compute build-out carries execution risk, including co-location commitments and the shift of workloads to Akamai's own cloud. The restructuring action and the FlexBase real estate program add complexity. Foreign currency swings can hurt reported revenue and help expenses, depending on the direction of the dollar. The company also faces integration risk from recent acquisitions and the possibility of further impairments or restructuring charges. Management also noted that it remains disciplined on bandwidth and network build-out costs.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $915.7M | $927.8M | -1.3% | $903.6M | +1.3% |
| Gross profit | $554.4M | $569.8M | -2.7% | $570.9M | -2.9% |
| Gross margin | 60.5% | 61.4% | -0.9 pp | 63.2% | -2.6 pp |
| Research & development | $91.9M | $105.4M | -12.8% | $99.9M | -8.1% |
| Sales & marketing | $129.1M | $129.1M | +0.0% | $122.7M | +5.2% |
| General & administrative | $146.1M | $150.3M | -2.8% | $153.3M | -4.6% |
| Total operating expenses | $789.1M | $760.3M | +3.8% | $730.3M | +8.0% |
| Operating income (loss) | $126.6M | $167.5M | -24.4% | $173.3M | -26.9% |
| Operating margin | 13.8% | 18.1% | -4.2 pp | 19.2% | -5.3 pp |
| Net income (loss) | $97.1M | $176.8M | -45.1% | $119.2M | -18.5% |
| Net margin | 10.6% | 19.1% | -8.5 pp | 13.2% | -2.6 pp |
| Diluted EPS | $0.62 | $1.10 | -$0.48 | $0.73 | -$0.11 |
Risks
Uncertain macroeconomic conditions have elongated sales cycles and caused customers to delay purchases; MD&A expects elongated sales cycles to continue in 2023. In FY2023 Q1 revenue rose 1.3% versus prior year while operating income fell 26.9% and operating margin declined 5.4 percentage points.
The filing says Akamai has experienced revenue declines in recent quarters for delivery-based solutions and expects this trend to continue due to pricing pressure and traffic growth fluctuations. MD&A reports delivery solutions revenue decreased 11.2% in FY2023 Q1 versus prior year, driven by lower traffic growth among largest customers and renewal pricing.
Competitors with greater resources can offer lower prices, bundle products, and implement shorter sales cycles, and Akamai notes prices paid by some customers have declined due to competition and contract renewals. MD&A attributes part of the delivery revenue decrease to the pricing impact of renewals.
Akamai recorded a $44.7 million restructuring charge in FY2023 Q1, up 457.9% versus prior year, primarily for severance and related headcount reductions. The risk factor warns such actions may disrupt operations, reduce productivity, and incur significant expense.
Akamai disclosed a material weakness in internal control over financial reporting related to income taxes as of December 31, 2022 and concluded disclosure controls and procedures were not effective. Remediation is ongoing and failure could lead to inaccurate financial reporting or restatement.
Capital expenditures rose 177.8% in FY2023 Q1 versus prior year to $141.7 million, reflecting compute infrastructure build-out. MD&A expects co-location costs to increase and notes supply chain constraints for server hardware and co-location capacity could impede network expansion.
The filing cites significant competition for talent and increased cash and stock-based compensation costs, plus retasking employees to compute solutions. MD&A says stock-based compensation will increase in 2023 from expected performance plan achievement and a shift from cash-based to stock-based compensation.
Risk factors flag international tax reform including Pillar 2 global minimum tax and the Inflation Reduction Act corporate alternative minimum tax. MD&A reports the FY2023 Q1 provision for income taxes increased 50.1% versus prior year and the effective tax rate was 23.5%, compared with 12.3% in the prior-year quarter.
MD&A states changes in foreign currency exchange rates had an unfavorable $20.8 million impact on revenue in FY2023 Q1 versus prior year. A strengthening dollar is noted as pressure on reported revenue and earnings.
MD&A says the March 2023 StorageOS/Ondat and May 2023 Neosec acquisitions are expected to be slightly dilutive to earnings per share. Risk factors cite integration difficulties, distraction of management, and failure to realize expected benefits from acquisitions.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Non-GAAP operating margin
Summary, forecast, risks and KPIs are extracted from AKAMAI TECHNOLOGIES INC's SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.