Summary
Akamai's September 2023 quarter produced solid top-line growth and a sharp increase in quarterly GAAP profit, but the year-to-date picture was softer. Revenue was $965.48 million for the quarter, up 9.5% from the prior-year quarter. Year-to-date revenue was $2.82 billion, up 4.8% from the prior-year period. Operating income was $176.13 million for the quarter, up 9.8%, and net income was $160.54 million, up 29.8%. Diluted EPS was $1.04, up 33.3%. The operating margin was 18.2%, flat with the prior-year quarter. The nine-month figures tell a different story: operating income fell 11.1% to $452.55 million, net income fell 2.1% to $386.46 million, and the operating margin slipped 2.9 percentage points to 16.1%. Diluted EPS for the nine months was $2.50, up 2.0%.
Non-GAAP results show the same quarter versus year-to-date split. Non-GAAP income from operations was $295.974 million, and the non-GAAP operating margin was 30.7%, compared with 27.5% in the prior-year quarter. Non-GAAP net income was $251.071 million, and non-GAAP net income per diluted share was $1.63. Adjusted EBITDA was $417.600 million, with an Adjusted EBITDA margin of 43.3%. The company attributed the growth in security and compute solutions to product demand and the Linode acquisition, while delivery revenue declined because of pricing pressure on renewals. Traffic growth rates have been hurt by economic headwinds, though management expects traffic growth rates to improve for the remainder of 2023 compared with last year. Compute revenue benefited from a price increase on some solutions and higher customer usage. The non-GAAP adjustments exclude stock-based compensation, amortization of acquired intangible assets, restructuring charges, and acquisition-related costs.
Cash generation was mixed. Operating cash flow was $359.44 million for the quarter, down 2.7% from the prior-year quarter. For the nine months, operating cash flow was $959.25 million, up 2.8%. Capital expenditures were $133.50 million for the quarter, up 162.8%, and $387.50 million for the nine months, up 120.2%. The spending reflects the build-out of the Akamai Connected Cloud and compute infrastructure. Deferred revenue was $124.39 million, up 13.3% from the prior-year quarter. Remaining performance obligations were $3.20 billion, flat with the prior-year quarter. The company also completed several acquisitions, including StorageOS in March 2023, Neosec in May 2023, and customer contracts from StackPath in August 2023 and Lumen in October 2023.
Guidance and outlook lean toward higher costs. Management expects cost of revenue to increase for the remainder of 2023, especially co-location costs, as the company builds out compute capacity. Research and development, sales and marketing, and general and administrative expenses are also expected to rise. Amortization of acquired intangible assets is expected to be approximately $15.2 million for the remainder of 2023, then $67.0 million, $68.5 million, $66.1 million, and $53.6 million for 2024, 2025, 2026, and 2027, respectively. Customer contract acquisitions from StackPath and Lumen are expected to add approximately 200 customers and $17.0 million to $20.0 million of revenue during the remainder of 2023. Those acquisitions are expected to be slightly dilutive to earnings per share at least through 2023.
Risks remain familiar but material. The filing points to global economic and geopolitical conditions, fluctuating inflation, uncertain energy supplies, supply chain disruptions, foreign exchange rate swings, and elevated interest rates. Competition and contract renewals continue to pressure delivery prices. The company also cites potential slowing revenue growth, cybersecurity and information technology risks, regulatory developments, intellectual property claims, and the challenge of scaling compute solutions. Management believes current cash, cash equivalents, and marketable securities, along with forecasted cash flows from operations, will be sufficient for foreseeable cash needs for at least the next 12 months.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $965.5M | $935.7M | +3.2% | $881.9M | +9.5% |
| Gross profit | $582.4M | $562.4M | +3.5% | $535.4M | +8.8% |
| Gross margin | 60.3% | 60.1% | +0.2 pp | 60.7% | -0.4 pp |
| Research & development | $105.9M | $99.0M | +7.0% | $94.0M | +12.6% |
| Sales & marketing | $132.3M | $136.6M | -3.1% | $123.9M | +6.8% |
| General & administrative | $147.3M | $151.8M | -3.0% | $139.4M | +5.7% |
| Total operating expenses | $789.4M | $785.9M | +0.4% | $721.5M | +9.4% |
| Operating income (loss) | $176.1M | $149.8M | +17.6% | $160.4M | +9.8% |
| Operating margin | 18.2% | 16.0% | +2.2 pp | 18.2% | +0.0 pp |
| Net income (loss) | $160.5M | $128.8M | +24.6% | $108.2M | +48.4% |
| Net margin | 16.6% | 13.8% | +2.9 pp | 12.3% | +4.4 pp |
| Diluted EPS | $1.04 | $0.84 | +$0.20 | $0.68 | +$0.36 |
| Customers | 200 | — | — | — | — |
Risks
The filing warns that revenue growth may not continue and could decline, and says delivery solutions revenue has declined and may continue to decline due to pricing pressure and traffic fluctuations. Total revenue was up 9.5% in the current quarter and up 4.8% year to date.
Akamai is investing heavily in compute solutions and Linode integration, including co-location and network expansion, which may reduce gross and operating margins. Capital expenditures were up 162.8% in the current quarter and up 120.2% year to date, and operating margin was down 2.9 percentage points year to date.
Global macroeconomic and geopolitical conditions have caused elongated sales cycles and delayed customer purchases, and rising energy costs in Europe. About 5% of global employees are in Tel Aviv and may be affected by the Israel-Hamas War, including military duty.
The company identified a material weakness in internal control over financial reporting related to income taxes as of December 31, 2022, and management concluded disclosure controls and procedures are not effective. Remediation is ongoing and cannot be assured, creating risk of inaccurate financial reporting or restatement.
Akamai faces ongoing attempts to breach the Akamai Connected Cloud and internal IT systems, with nation-state attacks potentially intensifying during geopolitical tensions. Linode integration and compute abuse mitigation remain ongoing, and vulnerabilities such as Log4Shell could require significant operational effort.
The filing says competition is intense and rapidly changing, especially in compute where a small number of very large competitors lead, and in security where threats evolve. Competitors may offer lower prices, bundle products, or spend more on marketing, which could reduce prices and revenue.
Akamai relies on large media and other customers for a significant part of revenue, and some have adopted DIY or multi-vendor strategies. If more large customers shift to internal solutions, traffic and contracted revenue commitments would decrease.
The company faces significant competition for skilled employees, particularly in security and cloud computing, and increased cash and stock-based compensation costs. The Israel-Hamas War may require employees in Tel Aviv to report for military service, disrupting operations.
The compute buildout requires significant additional co-location space and server-related hardware, and disruptions in the supply chain or inability to access facilities could prevent capacity expansion. Equipment procurement may be harder in areas facing unrest, trade sanctions, or natural disasters.
Rapidly evolving privacy laws such as GDPR and CCPA, plus content liability and data transfer restrictions, could require costly engineering changes and limit data use. Proposals to amend Section 230 or content-blocking rules could increase liability or reduce revenue.
As of September 30, 2023, Akamai had $3,565.0 million of convertible senior notes outstanding and a $500.0 million revolving credit facility with no outstanding borrowings. Failure to repay or refinance notes or obtain financing could harm the business.
The Pillar 2 global minimum tax of 15% and related EU implementation may increase tax liabilities and compliance costs. The Inflation Reduction Act's 1% excise tax on stock repurchases had an immaterial impact for the three months ended September 30, 2023.
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 Q3 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.