Akamai Technologies, Inc. (AKAM) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive sentiment with strong growth projections in compute and security revenues, a strategic partnership with NVIDIA, and a stable delivery business with pricing improvements. The Q&A session highlights opportunities in AI and API security, with strong demand and potential large deals in the pipeline. Despite the lack of share repurchases in Q3, the overall financial health and strategic positioning indicate a positive outlook for the stock price over the next two weeks.
Key Financial Performance
Revenue Revenue grew to $1.055 billion, up 5% year-over-year as reported and up 4% in constant currency. The growth was driven by strong performance across the portfolio, including accelerating momentum for Cloud Infrastructure Services, strong demand for high-growth security products, and stabilization of delivery revenue.
Non-GAAP Operating Margins Non-GAAP operating margins improved to 31%. This improvement reflects strong execution and higher-than-expected revenue.
Non-GAAP Earnings Per Share (EPS) Non-GAAP EPS was $1.86, up 17% year-over-year as reported and in constant currency. The increase was driven by higher-than-expected revenue and strong execution.
Cloud Infrastructure Services (CIS) Revenue CIS revenue was $81 million, up 39% year-over-year as reported and in constant currency. This growth accelerated from the 30% growth rate in Q2, driven by new and expanded contracts with major global companies.
Compute Revenue Compute revenue, which includes CIS and other cloud applications, was $180 million, up 8% year-over-year as reported and 7% in constant currency. The growth was impacted by a $7 million one-time benefit in Q3 2024, which affected the year-over-year growth rate.
Security Revenue Security revenue was $568 million, up 10% year-over-year as reported and 9% in constant currency. High-growth security products, including API security and Zero Trust Enterprise Security, contributed $77 million, growing 35% year-over-year as reported and 34% in constant currency.
Delivery Revenue Delivery revenue was $306 million, down 4% year-over-year as reported and in constant currency. However, the decline was slightly better than expected, showing improved trends.
International Revenue International revenue was $525 million, up 9% year-over-year as reported and 8% in constant currency, representing 50% of total revenue.
Non-GAAP Net Income Non-GAAP net income was $269 million, up 17% year-over-year as reported and in constant currency. This was driven by strong revenue performance and execution.
Capital Expenditures (CapEx) CapEx was $224 million, representing 21% of revenue, as investments were made in the fast-growing CIS business.
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Operating Highlights
Akamai Inference Cloud: Launched to support AI inference on the Internet, leveraging distributed compute capabilities and NVIDIA's Blackwell AI infrastructure. Initial customers include Monks and Harmonic, showcasing applications in sports broadcasting and video content.
Cloud Infrastructure Services (CIS): Revenue grew to $81 million, up 39% year-over-year. Expanded contracts with major global companies, including a $37 million renewal with a multinational gaming company in Japan.
Revenue Growth: Total revenue reached $1.055 billion, up 5% year-over-year. Non-GAAP operating margins improved to 31%, and non-GAAP EPS increased by 17% to $1.86.
Security Revenue: Revenue from high-growth security products grew 35% year-over-year, driven by API security and Zero Trust Enterprise Security solutions.
Strategic Shift to AI Inference: Positioned to lead in AI inference at the edge, transitioning from CDN pioneer to distributed cloud provider. Collaboration with NVIDIA highlights this shift.
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Risk or Challenges
Macroeconomic Trends: Potential adverse impacts from macroeconomic trends were mentioned as a risk factor that could affect revenue and earnings guidance.
Integration of Acquisitions: Challenges related to the integration of acquisitions were highlighted as a potential risk to achieving strategic objectives.
Geopolitical Developments: Geopolitical developments were identified as a risk factor that could materially impact the company's performance.
Delivery Revenue Decline: Delivery revenue declined by 4% year-over-year, which could pose a challenge to stabilizing this segment of the business.
Seasonal Revenue Variability: Seasonality in media and e-commerce traffic creates unpredictability in revenue, particularly in Q4.
Sales Commission Costs: Seasonal increases in sales commissions during Q4 could lead to higher operating expenses.
Foreign Exchange Fluctuations: Foreign exchange fluctuations were noted as a factor that could impact revenue positively or negatively.
Tax Legislation Changes: Changes in tax legislation, such as the One Big Beautiful Bill Act, could introduce complexities in tax planning and compliance.
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Guidance & Outlook
Revenue Growth: For Q4 2025, revenue is projected to be in the range of $1.065 billion to $1.085 billion, representing a 4% to 6% increase as reported and 3% to 5% in constant currency over Q4 2024. Full-year 2025 revenue is expected to grow 4% to 5% in constant currency.
Cloud Infrastructure Services (CIS) Growth: CIS revenue grew 39% year-over-year in Q3 2025 and is expected to achieve annual recurring revenue (ARR) growth of 40% to 45% year-over-year in constant currency by year-end 2025.
High-Growth Security Solutions: Revenue from high-growth security products, including API security and Zero Trust Enterprise Security, increased 35% year-over-year in Q3 2025. The company expects the combined ARR for these solutions to grow 30% to 35% year-over-year in constant currency for 2025.
API Security Business: The API security business is expected to exit 2025 with a run rate of approximately $100 million on both an as-reported and constant currency basis.
Capital Expenditures (CapEx): Q4 2025 CapEx is projected to be $171 million to $181 million, approximately 16% of total projected revenue. Full-year 2025 CapEx is focused on supporting the fast-growing CIS business.
Non-GAAP EPS: Q4 2025 non-GAAP EPS is expected to range from $1.65 to $1.85. Full-year 2025 non-GAAP EPS is projected to be between $6.93 and $7.13.
Operating Margins: Q4 2025 non-GAAP operating margin is expected to be approximately 28% to 30%. Full-year 2025 non-GAAP operating margin is projected to be 29% to 30%.
AI Inference Cloud: The Akamai Inference Cloud, launched in Q3 2025, is positioned to support the growing demand for AI inference at the edge. The service is available in 17 global locations, with plans to expand as customer demand grows.
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Shareholder Return Plan
Share Repurchase: During the third quarter, we did not repurchase any shares. However, year-to-date, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. Our intentions remain the same to continue buying back shares over time, to offset dilution from employee equity programs, and to be opportunistic in both M&A and share repurchases when market and business conditions warrant.
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Key Q&A
Q:Are we reiterating the growth guidance for security and compute as mentioned last quarter?
A:Yes, for security, the growth is around 10%. For compute, it will be slightly under 15% for the year due to some larger contracts ramping up later than expected.
Q:Are there any insights or guardrails for 2026 given how 2025 has played out?
A:Guidance for 2026 will be provided in the February call. However, there is strong momentum in CIS, especially with the new AI Inference Cloud, which could accelerate growth next year.
Q:Can you elaborate on the progress and potential of Akamai Inference Cloud?
A:The Akamai Inference Cloud is in its early stages but has strong interest from customers. It supports AI applications requiring fast inference close to users, such as personalized commerce experiences, robotics, and media workflows. The partnership with NVIDIA is key to its capabilities.
Q:What is the hiring strategy for sales reps in security and compute?
A:The go-to-market transformation will continue through early next year, with hiring ongoing through the first half of next year to increase sales capacity in security and compute.
Q:How does Akamai differentiate itself from hyperscalers in edge inferencing?
A:Akamai has a unique platform with over 4,000 points of presence in 700+ cities, enabling faster compute logic closer to users. This is not a capacity constraint issue but a performance advantage.
Q:What opportunities exist for API security in evolving application paradigms?
A:Akamai is extending its API security to new Agentic protocols and AI applications, including shadow AI detection and protection with its AI firewall service.
Q:What are the CapEx requirements and gross margin expectations for inferencing?
A:Initial deployments with NVIDIA are in 17 cities, with CapEx closely tied to demand. Gross margins for compute are expected to be similar to current levels, with potential for improvement as the business scales.
Q:What incentives are being provided to the sales team for cross-selling?
A:Sales teams are incentivized for longer-term deals, which has led to an elongation of customer contract lengths. Most customers are either security or compute customers, with a significant overlap in security and delivery.
Q:What is the potential for large inference deals in the pipeline?
A:There is interest in large inference deals, with some customers requesting sizable contracts. This could significantly contribute to growth next year.
Q:Why is pricing in the delivery business more stable now?
A:There are fewer competitors in the market, and some have exited the business. This has led to stabilization in pricing, especially for larger media deals.
Q:What is driving the growth in the compute business?
A:The focus is on Cloud Infrastructure Services (CIS), which includes Edge Workers, managed container services, and the Akamai Inference Cloud. These services are seeing strong demand and growth.
Q:What is the security attach opportunity with Akamai Inference Cloud?
A:There is a significant opportunity to secure inference applications and models with API security and AI firewall services, addressing vulnerabilities unique to these applications.
Q:How is the traffic mix evolving with the rise of AI?
A:AI is expected to increase traffic, with applications like personalized video experiences and augmented reality driving growth. Traditional video and software downloads currently dominate traffic.
Q:What are the gross margin profiles of Akamai's business segments?
A:Security has high 80s gross margins, compute is in the low 70s, and delivery is in the high 60s. Overall gross margins are expected to remain in the low 70s, with potential short-term fluctuations due to scaling.
Q:Are CIS deals mostly new or migrations from existing workloads?
A:It's a combination of both. Outages at other providers highlight the importance of Akamai's reliability, which is a key differentiator.
Q:What is the penetration rate for segmentation and AI security products?
A:There is significant room for growth in segmentation and API security, with strong interest in AI firewall solutions for protecting inference engines and models.
Q:What is the strategic importance of the NVIDIA partnership?
A:The partnership enables Akamai to offer powerful compute capabilities close to users, leveraging NVIDIA's Blackwell 6000 GPUs. This is critical for supporting advanced AI applications.
Q:What is driving the strong operating margin performance?
A:Good execution across procurement, back-office modernization, and network build-out has contributed to strong operating margins.
Q:What is the outlook for delivery business growth?
A:Delivery is expected to remain flat to down single digits, with potential for improvement from AI-driven traffic and gaming.
Q:Why were there no share repurchases in Q3 despite record buybacks earlier?
A:There is no change in strategy. Akamai has already spent more on share repurchases this year than ever before.
Q:What is driving international growth compared to the U.S.?
A:Strong performance in APJ, particularly in compute, and better-than-expected growth in Western Europe are driving international growth.
Q:What is the potential impact of AI on delivery and CIS businesses?
A:AI is expected to drive more traffic and create new applications, benefiting both delivery and CIS businesses.
Q:What is the demand outlook for security products?
A:Strong demand for API security and Guardicore Zero Trust products is driving growth, with significant runway for future expansion.
Q:What is the significance of having all three major cloud providers using CIS?
A:Akamai recently signed the third major cloud provider, indicating strong adoption and potential for future growth in CIS.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for 2026, stating that it would be given in the February call. They also did not provide detailed metrics on the percentage of customers using all three segments or the exact impact of longer-term deals on sales cycles.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Inference
AI application
AI inference
AI infrastructure
Choice Gartner
Cloud Infrastructure
Founder CEO
GTC
Gartner Voice
Inference Cloud
Inference market
Infrastructure Services
Internet
Korea
NVIDIA
Services renewal
Voice Customer
airline
architecture
bank
computing AI
contract API
contract insurance
demand AI
expansion contract
game
generation
insurance group
intelligence
latency
need scale
pioneer
recognition
response time
security contract
video content
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The earnings call highlights strong growth in Cloud Infrastructure Services and security solutions, positive financial guidance, and a successful AI Inference Cloud launch. The Q&A section reveals increased customer commitments and successful competition against hyperscalers. Although management was vague on some specifics, the overall sentiment is positive, particularly with the optimistic guidance and strategic investments in AI and security.
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