Summary
Akamai reported revenue of $935.72 million for its second fiscal quarter of 2023, up 3.6% from $903.33 million in the prior-year quarter. Year to date, revenue of $1.85 billion rose 2.5% from $1.81 billion. The mix keeps shifting. Management said security and compute together made up more than half of total revenue in the first half of 2023, with security holding the largest single share. Delivery revenue declined, which the filing attributes to the pricing impact of contract renewals and to softer traffic growth among some of the company's largest customers. Traffic across the network keeps growing overall, but the rate of that growth has cooled as customers work through a soft economy. The company expects traffic growth rates to improve for the remainder of 2023 compared with last year.
Profitability did not keep pace with the top line. Operating income of $149.78 million in the quarter was down 14.4% from the prior-year quarter, and the operating margin fell to 16.0% from 19.4%. Net income of $128.82 million declined 6.5%. Diluted earnings per share of $0.84 was down 1.2% from $0.85. The first half was weaker: operating income of $276.42 million fell 20.7% and net income of $225.92 million fell 16.7%. Diluted earnings per share for the six months was $1.46 against $1.67 a year earlier. Two items carry much of the blame. A restructuring charge tied to the FlexBase program, which is shedding office space the company no longer needs, ran through both periods. Stock-based compensation also climbed sharply after Akamai shifted part of a compensation program from cash to equity and introduced an award tied to moving applications onto Akamai Connected Cloud.
Non-GAAP results, which strip out those charges, held up better. Non-GAAP income from operations was $273.04 million against $262.45 million in the prior-year quarter. The non-GAAP operating margin came in at 29.2%, essentially level with 29.1%. Non-GAAP net income per diluted share was $1.49 compared with $1.35. The gap between GAAP and non-GAAP earnings is wide, and it reflects how much of Akamai's current cost base sits in items management asks investors to look past.
Cash generation improved. Operating cash flow of $366.31 million in the quarter was up 7.3%, and the first-half total of $599.81 million was up 6.4%. Capital expenditures of $112.30 million in the quarter rose 51.3%, and year-to-date capital expenditures of $254.00 million rose 102.8%, as spending tilted toward the compute build-out. Deferred revenue, the current portion only, of $138.61 million was up 24.0%. Remaining performance obligations of $3.30 billion were flat compared with the prior-year quarter, a sign that contracted backlog is not yet translating into faster reported growth.
Guidance commentary points to rising costs for the rest of fiscal 2023. Cost of revenue is expected to increase, led by co-location charges as the network expands to support compute. Research and development, sales and marketing, and general and administrative expenses are each expected to rise, with general and administrative partly offset by lower real estate costs from FlexBase. The Ondat and Neosec acquisitions, closed in March 2023 and May 2023, are expected to be slightly dilutive to earnings per share at least through 2023. Management flags potential slowing revenue growth, global economic and geopolitical conditions, competition, cybersecurity and information technology risk, regulatory developments, and intellectual property claims as factors that could change the picture.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $935.7M | $915.7M | +2.2% | $903.3M | +3.6% |
| Gross profit | $562.4M | $554.4M | +1.5% | $556.7M | +1.0% |
| Gross margin | 60.1% | 60.5% | -0.4 pp | 61.6% | -1.5 pp |
| Research & development | $99.0M | $91.9M | +7.8% | $92.1M | +7.6% |
| Sales & marketing | $136.6M | $129.1M | +5.8% | $126.7M | +7.8% |
| General & administrative | $151.8M | $146.1M | +3.9% | $141.2M | +7.5% |
| Total operating expenses | $785.9M | $789.1M | -0.4% | $728.3M | +7.9% |
| Operating income (loss) | $149.8M | $126.6M | +18.3% | $175.0M | -14.4% |
| Operating margin | 16.0% | 13.8% | +2.2 pp | 19.4% | -3.4 pp |
| Net income (loss) | $128.8M | $97.1M | +32.7% | $119.5M | +7.8% |
| Net margin | 13.8% | 10.6% | +3.2 pp | 13.2% | +0.5 pp |
| Diluted EPS | $0.84 | $0.62 | +$0.22 | $0.74 | +$0.10 |
Risks
The company identified a material weakness in internal control over financial reporting as of December 31, 2022 related to income taxes and concluded disclosure controls and procedures are not effective. If not remediated, this could lead to inaccurate financial reporting or restatement.
Global economic and geopolitical conditions, including inflation, elevated interest rates, and recessionary concerns, have led to elongated sales cycles and customers delaying purchases. The MD&A states these conditions continue to impact revenue growth rates.
Delivery solutions revenue decreased 8.9% in the quarter ended June 30, 2023 compared to the prior-year quarter, and the company expects this trend to continue due to pricing pressure from competition and fluctuations in traffic growth rates.
Competition is intense, particularly in compute solutions where a small number of very large competitors lead the market. These competitors may offer lower prices, bundle products, or have greater resources, potentially reducing revenue and market share.
The acquisitions of Ondat in March 2023 and Neosec in May 2023 are expected to be slightly dilutive to earnings per share at least through 2023. Integration of these and future acquisitions may disrupt operations and divert management attention.
The company depends on third-party transmission capacity, co-location facilities, and hardware equipment. Rising energy costs and supply chain disruptions could prevent access to needed resources, especially for the compute build-out, leading to service disruptions or lost revenue.
Competition for skilled employees, particularly in security and cloud computing, increases compensation costs and may limit hiring. The company is retasking employees to work on compute solutions, and failure to retain key personnel could harm the business.
Fluctuations in foreign currency exchange rates affect reported operating results. A strengthening U.S. dollar decreased revenue by $5.9 million and $26.7 million during the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022.
Rapidly evolving privacy regulations such as GDPR and CCPA, as well as content liability laws, fair share taxes, and data transfer restrictions, could increase compliance costs and limit the ability to offer certain features or operate in some jurisdictions.
Restructuring charges increased 98.5% to $9.4 million in the quarter ended June 30, 2023 and 324.8% to $54.1 million year to date, driven by the FlexBase program and headcount reductions. These activities may disrupt operations and reduce productivity.
Ongoing cybersecurity threats include nation state attacks, ransomware, and vulnerabilities like Log4Shell. The compute business introduces new risks of abuse, and a significant incident could lead to customer loss, reputational damage, and regulatory actions.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Non-GAAP operating margin
Adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from AKAMAI TECHNOLOGIES INC's SEC filings for Q2 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.