Akamai Earnings: Security Acceleration Drives Strong Results and Guidance Raise

After decelerating each quarter since the beginning of 2022, security revenue growth for Akamai AKAM accelerated substantially in the second quarter. With strong sales trends for its security products, management expects a similar pace of growth in the second half. With continuing strength in compute as well and relatively less impact from the declining delivery business, management raised its full-year sales and earnings guidance.

We’re raising our fair value estimate for Akamai to $90 from $87 after adjusting our near-term forecast, but with the stock’s recent move that only accelerated afterhours, the stock no longer looks undervalued.

Total sales grew 4% year over year in constant currency, as midteens growth in both security and compute more than offset the 8% decline in delivery. The delivery business that Akamai was built on now makes up only about 40% of total revenue, a share that should continue diminishing. Delivery remains a declining business, and we believe security and compute tailwinds will keep growth in those segments elevated for several years. We expect the continuing mix shift to result in sales growth accelerating each year throughout our five-year forecast.

Akamai has posted consecutive quarters of strong security bookings, greater penetration of customers buying a security product (now over 75%), and now over 700 customers buying four or more security products. It is also selling security to customers that don’t use Akamai’s content delivery network. With secular tailwinds that should force enterprises to continue spending on enhancing their security protections and a deepening security presence with its customers, we expect growth in security sales, which now make up nearly half of total revenue, to stay high. We expect compute growth to stay high as well. Akamai has continued to invest in its compute business after acquiring Linode in early 2022, and is well positioned to serve edge computing needs.