AKAMAI TECHNOLOGIES INC Q2 FY2025 earnings

Akamai's fiscal 2025 second quarter revenue was $1.043 billion, up 6.5% from the prior-year quarter. GAAP operating income rose 2.3% to $151.46 million, but GAAP net income fell 21.3% to $103.62 million and diluted EPS slipped 17.4% to $0.71. GAAP operating margin was 14.5%, down 0.6 percentage points from a year earlier. The gap between operating income and net income reflects a higher provision for income taxes and lower income outside operations. Non-GAAP results looked better than the GAAP lines. Non-GAAP net income per diluted share was $1.73, up 9%. Non-GAAP operating margin was 30%, up 1 percentage point, and Adjusted EBITDA was $444 million, up 9%. For the first six months, revenue was $2.06 billion, up 4.7%, while GAAP net income was $226.79 million, down 26.2%, and GAAP diluted EPS was $1.53, down 22.3%. First-half GAAP operating margin was 14.9%, down 1.1 percentage points.

The revenue mix shows security and cloud computing carrying growth while delivery remains a drag. Security revenue rose 11%, cloud computing revenue rose 13%, and Cloud Infrastructure Services revenue rose 30% (29% adjusted for foreign exchange). Delivery revenue fell 3%. U.S. revenue rose 4%, and international revenue rose 10%. Management pointed to API security, web application and Guardicore segmentation as security drivers. The delivery decline came from lower pricing on renewals and customers moving to cost optimization or do-it-yourself options, though the company said renewal pricing pressure is moderating. Contracted backlog was $4.30 billion in remaining performance obligations, up 26.5%, and current deferred revenue was $179.76 million, up 28.5%. Operating cash flow was $459.15 million, up 6.5%, while capital expenditures were $145.54 million, up 59.9%. For the first six months, operating cash flow was $710.35 million, down 9.3%, and capital expenditures were $263.31 million, up 42.5%.

For the third quarter, Akamai guided revenue of $1.035 billion to $1.050 billion, non-GAAP operating margin of 28%, and non-GAAP net income per diluted share of $1.62 to $1.66. For the full year 2025, the company guided revenue of $4.135 billion to $4.205 billion, non-GAAP operating margin of 29%, and non-GAAP net income per diluted share of $6.60 to $6.80. Both periods assume a 19% non-GAAP tax rate. Akamai expects capex as a percentage of revenue of 22% for the third quarter and 20% for the full year. Management said it is raising guidance for revenue and earnings for the remainder of the year and expects Cloud Infrastructure Services growth to accelerate. The non-GAAP guidance cannot be reconciled to GAAP without unreasonable effort, because items such as stock-based compensation, amortization of intangibles, acquisition costs and restructuring costs are hard to predict.

The quarter carried clear pressure on margins and taxes. GAAP net income fell even as revenue grew. The provision for income taxes increased because of higher tax reserves, an increase in the valuation allowance recorded against state credits, and the tax treatment of stock-based compensation. MD&A flags slower revenue growth, global economic and geopolitical conditions, changes in customer spending, inflation, international tensions, capital markets volatility, competition, and risks around cloud computing growth and cybersecurity. Delivery stays exposed to renewal pricing, customer cost optimization and do-it-yourself alternatives. Cost of revenue is rising in co-location fees, network build-out and depreciation as Akamai expands its compute platform, and some co-location costs land before locations are fully used. Foreign exchange can also move reported results, and interest and marketable securities income declined as the company repositioned investments to repay convertible notes.