Akamai at William Blair Conference: Strategic Shift to Security and Compute

On Thursday, June 5, 2025, Akamai Technologies (NASDAQ:AKAM) presented at the 45th Annual William Blair Growth Stock Conference. The company’s Chief Financial Officer, Ed McGowan, outlined Akamai’s strategic transformation from a content delivery network (CDN) provider to a leader in cybersecurity and compute services. While the company is currently in an investment phase, it anticipates growth in security and compute revenues, which could drive future margin expansion.

Key Takeaways

• Akamai is shifting focus from CDN to security and compute, with significant growth expected in these areas.
• The security business generates $2 billion in revenue, growing at 10% annually.
• Compute infrastructure services are expanding rapidly, with growth rates between 40%-45%.
• Akamai’s strategic partnerships provide free bandwidth, contributing to high gross margins.
• The company leverages AI for developing security products and exploring compute solutions.

Financial Results

• CDN Business: Accounts for about one-third of Akamai’s revenue but is declining in the mid to low single digits.
• Security Business: Generates $2 billion in revenue, with web security contributing $1.8 billion.
• Compute Business: Experiencing rapid growth, with infrastructure services increasing by 40%-45%.
• Gross Margins: Cash gross margins are in the low 70s.
• Operating Margins: Around 30%, with recent underperformance due to investments.

Operational Updates

• CDN: Traffic growth is stabilizing despite pricing pressures. The business remains a strategic asset providing cash flow.
• Security: Focuses on web security, bot management, and API protection, with AI integration for product development.
• Compute: Offers full-stack capabilities and differentiates from hyperscalers through cost and performance advantages.
• AI: Development of AI-driven security products and exploration of AI solutions in compute.

Future Outlook

• Compute Business: Expected to become the largest part of Akamai within ten years.
• Margin Expansion: Anticipated as security and compute revenues grow.
• Channel Leverage: Increased sales through channels, particularly for GuardaCore and API security.
• Strategic Partnerships: Continued collaborations with carrier networks and hyperscalers.

Q&A Highlights

• Business Model: Emphasizes recurring revenue and product cross-selling.
• Competitive Advantages: Highlights cost-effectiveness and lack of competition with customers.
• Egress Fees: No charges for compute services, providing a cost advantage.
• Low Latency: Ability to meet stringent latency requirements, such as Apple Pay’s 60-millisecond benchmark.
• Vertical Penetration: Successful deployments in industries like manufacturing, retail, and banking.

For a comprehensive understanding, readers are encouraged to refer to the full transcript below.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Excellent. Hello, everyone, and thank you for joining us for our Growth Stock Conference and today’s session with Akamai. My name is Jonathan Hoenn. I’m the cybersecurity analyst for William Blair and Company.

Our speaker today is Ed McGowan, who is the chief financial officer of the company and has been with Akamai and is with Akamai. Before we begin, I’m required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at ww.williamblair.com. Ed, could I maybe have you start us off with a little bit of a level set discussion on the Akamai story for those who are less familiar with the company, and maybe we can dive into a little bit of Q and A after that to go through the business. Sure.

Ed McGowan, Chief Financial Officer, Akamai: Well, thank you, Jonathan, for having us today. Really appreciate it. Good to see everyone out here. So how many of you are familiar with Akamai? Show of hands.

Okay, so few new folks to the name. So Akamai was founded twenty five years ago, designed to solve what was called the worldwide weight problem, which essentially is the Internet wasn’t designed for performance. So lots of choke points in the Internet. The original reason for the company’s being was to essentially solve the performance problem on the Internet. And how we did that was distributing servers all around the world close to where the end users are.

So if you’re requesting to watch a movie or to have a banking experience or shopping cart experience, The concept was to deliver that as close to where the user is as possible, even though the origin may be thousands of miles away. It also enables companies to scale. So think of big live streaming events. The NCAA tournament was probably the first time we saw the massive demand for users coming online and wanting to watch television on the Internet. And it wouldn’t have been possible if it wasn’t for us, because we could deliver that experience close to where the user is outside of the choke points on the Internet.

So that was our first evolution of a business. We call that content delivery. So we originally formed as a what’s called a CDN or content delivery network. That business is today about a third of our revenue. So we’ve evolved quite a bit from those early findings.

And I think the key to the CDN business is finding ways to monetize the platform outside of just serving content. And we’ve been very successful in doing that. A lot of you may know us as a cyber security company. So the second evolution of the company was leveraging the platform that we had and all the data that we see. We see every Internet user multiple times a day.

We know where all the bad actors are. We have some unique capabilities by being so distributed to solve some very challenging security problems on the Internet. So we have today about a $2,000,000,000 security business that’s growing about 10% a year. Our primary solutions are about say a billion 8 of our $2,000,000,000 of revenue comes from what’s called web security. So that is basically protecting websites and web applications from all sorts of different security challenges.

For example, denial of service attacks is one way that bad actors will try to extort money from our customers by flooding the origin with a tremendous amount of traffic with using infected devices. So I’m sure you guys have seen emails, phishing attacks, texts, etcetera. Oftentimes users will click on those unknowingly and become part of what’s called a bot army. And a bot army is something that can be turned on and all the devices will go attack one particular site and try to take it down. So we’ve developed a number of solutions including capabilities to help protect the websites from defamement or from people trying to steal information.

It’s called a web application firewall. We’ve also developed some technology to help our customers understand what bots are coming to their sites. So a lot of the traffic on the Internet today isn’t actually human, it’s machines. So it’s things like price scraping bots or search bots that are trying to index the Internet, malicious bots that are trying to do things like credential stuffing where they may have bunch of stolen usernames and passwords and they go to a website and just keep continually trying to put those in to try to see if they can get a hit. So we’ve developed technology that enables our customers to understand what those bots are, block them if they’re bad, do different things.

Maybe it’s a price scraping bot, you want to give it disinformation. And that business has grown tremendously over the last ten years. So we’ve essentially evolved the company from which ten years ago was about 85% CDN to now today about 52% of our revenue comes from security. So that was a big and growing business for us. We’ve also evolved from just protecting websites and web applications to now working with the CSOs on protecting their employees and the applications that they run behind the firewall.

So we have some capabilities to replace a VPN. We also have capabilities to do micro segmentation, which essentially will segment out your network and then enable you to get great visibility of what’s going on in your network. So if something does get in, you can stop it from spreading. You can find things that get through all of your other types of protections that you may have. You might have endpoint security, email security, etcetera.

And sometimes things get in. This enables you to be able to stop that before it becomes a big problem. That part of our business is growing extremely fast. It’s growing at about 30% a year right now, 35%, excuse me. So a great part of the business that’s expanding.

We’ve recently acquired a company that gives us the ability to protect APIs. So APIs right now is one of the most exploited areas of weakness for our customers in terms of protection. Most modern applications, almost every modern application both web and non web use API. So we acquired a company that was a market leader in that field, and we expect that to be extremely large business for us over time. So we’re very excited about our security business, especially with some of our newer security offerings.

The last thing that I want to talk about and where the other portion of our business comes from is called compute. So we’ve always been in and around compute in terms of leveraging our platform to do what we called edge computing. So our customers would come to us and want to run sort of lighter weight applications, say for example, a waiting room application. You might go to a website, let’s say they’re selling tickets. Sale goes on at 10:00, everybody hits the website at the same time.

And rather than showing a bad experience, meaning the site either crashes or you show up some kind of an error message, you can develop a nice waiting room where you can tell you where you are in the queue, etc. We could do AB testing, show an ad to one person, show a different ad to another, see how they’re performing. Usually these applications were run using JavaScript or WebAssembly. We’ve recently moved into full stack computing, competing against the big hyperscalers. So we have full stack computing capabilities that came through an acquisition we did about three years ago, a company called Linode, which was essentially focused on small medium business.

We acquired that company, we’ve added about 20 core locations. We’ve enabled our network now to run, you can run containers in any one of our 4,000 locations. So we’re very differentiated from the hyperscalers in terms of being more distributed, we’re a lot cheaper, and it performs much better. So that business is growing extremely fast for us. It’s going to grow about 15% this year.

The sort of businesses, the legacy business is about half of the revenue today and that’s exiting some of that, but we’re really focused on the what we call our compute infrastructure services and that business is growing about 40%, forty five %, couple hundred million dollars, very excited about that. I’m up here ten years from now talking about the business, would expect that would be the biggest part of our business. So with that, I’ll go back to Jonathan for Q and A.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Excellent, excellent. Thanks for the overview Ed. A lot has changed with Akamai over the past few years with the node acquisition, a critical element to help you move from largely a CDN and security focused provider to now include, core cloud computing. Can you put it all together for us and maybe help us understand the grand vision of how all of these parts fit together?

Ed McGowan, Chief Financial Officer, Akamai: Yeah. So, you know, one of the most attractive things about Akamai is our business model. Right? So we’ve recurring revenue. Customers buy multiple products from us.

As a matter of fact, 70% of our customers today are both CDN and security customers. So we’ve got about a third of our customers are buying more than one security product. So we’re very successful in terms of leveraging that platform and building new capabilities on top of it. Our services all run on the same platform. So for example, I might be serving a video to Jonathan’s house and blocking an attack at his neighbor’s house, right?

So the same server can do both things. We can apply the web application firewall rules at the same time I’m delivering a banking transaction or shopping transaction. So there’s an awful lot of leverage in the model. Now in terms of the compute business, we’ve enabled our network to now be able to run code in any location. So you now can run things like we talk about Apple Private Relay.

They came to us several years ago with a problem of wanting to offer a solution where you can essentially surf privately, if you will, but you didn’t want to introduce latency into the equation. So if that slowed you down, customers wouldn’t adopt it. So they tried doing it with a hyperscaler, it didn’t work. Came came to us. We now run that in hundreds of locations and enabled us to work so that the end user doesn’t realize that there’s, you know, a lot of compute going on behind the scenes.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Fantastic, fantastic. And you know, maybe similarly from a financial perspective, can you help us understand sort of the constituent components of the business? And what does that margin profile sort of look like over time? What do the growth rates look like for those businesses?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, so there’s an enormous amount of operating leverage in the business itself. So if I think about the sales force, my sales force sells to all products to all customers. We do have some small overlay sales. We do leverage a channel about a third of our business comes to the channel. I expect that number to increase over time.

Security, for example, most of our GuardaCore sales, almost all of them, all of our sales for micro segmentation go through the channel. A lot of our API sales will go through the channel. So we should get some significant leverage there. We also get a leverage in engineering. So the same team that builds the CDN platform deploys the servers.

Also, you know, those servers run security, but also our compute locations are built by the same team. So I get some significant leverage there, also leverage with our engineering teams. And in terms of the costs, people are our biggest costs. So labor is by far the biggest cost. The next cost is the cost to run the network.

One of the secrets to Akamai is we started off in the early days really embracing a partnership with the big carrier networks. So our business is very critical to have good relationships with the networks. And as a result, we deploy our machines in their networks oftentimes in many locations. And by doing so, we help the performance for their end users and also save them an enormous amount of money so that they don’t have to build out infrastructure to go get content that the customers are requesting. A lot of that lives locally on our network.

And as a result, we get free bandwidth in some cases, free colocation and free power. So about 80% of our bandwidth today is free. So we’re able to get enormous profits from our CDN business despite the fact that it is a pretty competitive business. In terms of the gross margins, we run cash gross margins in the low 70s. Our operating margins are around 30%.

And as I talked about with the operating leverage, with the growth of security and compute, we believe that our operating margin will improve over time. We’re still in an investment mode now where we’re investing, we’re a little bit off that 30, which last quarter we were 30%. We got it to just slightly under that this quarter. But we believe that we can, as those products begin to grow, our margins can expand over time.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Excellent. Excellent. I don’t think we can have any discussion at this this conference without talking about AI. So I think, you know, first of all, you know, help us understand, you know, how does the AI opportunity fit within Akamai and what do you need to do, you know, potentially from an investment standpoint to help, I guess realize this opportunity and how do you monetize it?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, so a couple of different ways. I won’t get into the internal use of AI in terms of cost savings and scale and stuff like that. I’ll focus more on what we’re doing with customers. So we use AI today with our security products. It’s something that we’ve been using for a while.

Obviously determining how to make security decisions is critical with leveraging AI. So that’s something that we’ve been doing and will continue to do. We just announced a product, what we call AI security for basically large language models. And if you think about a customer that’s using a large language model, there’s a couple of potential problems. One is it’s a significant cost to run one of those.

So if you were ever hit with a denial of service attack, you could potentially have millions of requests and run up your bill and that can be a problem. But also you worry about potentially leaking sensitive information or personal identifiable information. So being able to understand the request that’s coming in that it’s a legitimate question, legitimate user, And then the answer that comes back out is something that you would think of as a one, not leaking sensitive information, but also a lot of these models do what’s called hallucinate, where they might give you a crazy answer and it could do some serious brand damage. So basically we enable the customer to put in essentially a firewall effectively to make sure that the questions coming in are legitimate questions. You’re not getting hit with denial of service attacks And also the answers going out are not leaking out sensitive information.

So that’s just an example of innovation and creating a new product line for us. In terms of compute, if you think about one of the value propositions we have around low latency and being massively distributed, when you run some of these lighter weight inference models, being close to the user and being able to not have to proxy traffic back to a central server and introduce latency is critical. So things like voice to text or ad decisioning. So you might have an ad decisioning model that’s running very close to where the user is and you can deliver that experience cost effectively as well as with a higher performance. So we think that with AI it creates enormous opportunity for us from both product innovation.

Also with security, security becomes a lot more challenging. The more sophisticated these AI models get with some of the deep fakes and things like that just creates a much more challenging environment for our customers. So just gives us a lot of runway in terms of, you know, new security offerings and things like that.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: That makes a ton of sense and and we’re rapidly heading into a brave new world. So I think there’s a ton of opportunity for companies to help secure that. Maybe digging a little bit deeper into the security market, you know, micro segmentation and API security have been two of the biggest growth drivers for your security business. Can you talk a little bit about these opportunities, why they’ve been growing, and maybe the role you could play in a Zero Trust world?

Ed McGowan, Chief Financial Officer, Akamai: Yeah. So I’ll start with segmentation. Traditionally segmentation has been one of the more challenging things for people to do, and typically it was done either physically segmenting your market, your environment, or using machines and a lot of equipment. It was very challenging and very costly to do it. We have an agent approach where we basically run agents on your machines or your cloud instances, etc.

So it’s very easy to deploy. Going back to your AI question, we actually developed a large language model to help our customers to do the deployment and do the investigation in terms of segmenting out their environment. So if you think about from a security perspective, it’s probably one of the smartest things you can do a CISO. Because no matter how good your perimeter security is, something always gets in. And especially now, go back to the AI point, with AI the fakes are getting much better.

So the likelihood that even though your employees are smart and this whole zero trust thing is don’t trust any device, don’t trust any person, is about somebody is inevitably going to click on a bad link and stuff is going to get in. What segmentation does is it limits the damage. So it can identify malware in the environment and you can shut it down before it becomes a headline grabbing problem. And a lot of times people just weren’t doing it because it was very difficult to do. We’ve made we’ve taken the difficulty out of it.

We’ve been able to scale. We’ve got some massive scale with some of our customers. Today that’s a couple you know, bought the company about $30,000,000 We’ve grown this to well over $100,000,000 We expect that to be a very significant contributor to revenue over time.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Excellent. And maybe combining the last two topics together, this notion of AI and security together. When I look at the Akamai platform, have both the edge, so the ability to deliver performance. You have security. You have also now the ability to link back to the core compute as well.

So when we look at sort of the evolution of the space where we’re going to see agentic AI come out, MCP, we’re going to see all these evolutions happening at a rapid pace. How does Akamai maybe serve as a potential platform for that to take place?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, so one area that’s started to get a lot of traction is use of GPU. So today the platform handles GPU. So that’s a potential area for us to expand and grow. And the advantages there is being so massively distributed, we can run GPU pretty much anywhere. We also think you could use CPU too in some cases with some of these inference engines that don’t require as much memory and compute it’s not as compute intensive, so that’s another advantage to us.

So you know, there’s enormous opportunity there. Also just as inferencing becomes a bigger part of day to day life, those models are critical in terms of latency. You can’t introduce latency into any experience. Otherwise, users will get frustrated and not leverage the application. So I think that could be a potential game changer for us and being as distributed as we are, think we have a significant advantage there.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Got it. Got it. Maybe switching to the core cloud opportunity, we do get a lot of questions in terms of what are the use cases that customers are using Akamai the most for how often do you sort of have the ability to win against hyperscalers?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, so it’s, you know, first of all, we’re more cost effective. We do see a lot of customers come to us in sort of the early days where they have applications that are very chatty or they’re accessed very frequently. So you might store your app, use your compute at AWS and use AWS as your origin or any one of the hyperscalers. And there’s some hidden charges in there including what’s called egress fees. So that means every time you access the data and you pull it out, you’re paying a fee.

We have customers in the CDN business that might use a hyperscaler as an origin and we might get 98% offload, meaning 9.8 out of 10 requests can be served off the CDN and we never have to go back to the origin. You think, wow, that’s phenomenal. In some cases, our customers will say that 2% miss is more than my CDN bill. So it’s really expensive when you put your data in to get it out. So we have customers coming to us.

We don’t charge for egress fees because we’ve connected our few locations with our backbone. We serve hundreds of terabits per second a day, so it doesn’t cost us anything to serve the traffic. There’s not a lot of traffic that typically goes with these applications, but it’s very expensive. So that’s one area. Low latency is another one.

We actually had a customer who was trying to comply with Apple Pay, which had a sixty millisecond latency requirement. Couldn’t get that done in a hyperscale. They came to us and we were able to comply with that. We are seeing a lot of I’m impressed with what I’m seeing across the board. I had originally assumed we would be very strong in media, and we are doing pretty well there.

But we’ve got customers in manufacturing, in retail, banking, the board. So we’ve done a good job penetrating a lot more verticals. We’re cheaper than the hyperscalers, we don’t compete with our customers, and we perform better. So that’s really the main value proposition.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Excellent, excellent. And then when it comes to having both cloud and edge, can you help us understand where having both sides of the equation potentially along with security and now these AI capabilities, putting it all together, what are the strengths here and then how does that become beneficial to the customer?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, I’d say performance and reliability are probably the two biggest strengths. You’ve got a lot of redundancy built into the network and the platform. Performance is a big one for us. Cost is another. This leverage that we have across all of our different products, we do pass a lot of that savings on to our customers.

So it is a very attractive financial proposition for our customers.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Got it. Got it. So we can’t unfortunately not talk about the CDN business. Just to

Ed McGowan, Chief Financial Officer, Akamai: maybe

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: hit on some of the pricing pressure and slower growth that have impacted the business over the past few years. You’ve also reallocated resources away from the business to drive higher profitability. Is there light at the tunnel now? Is there in terms of the business stabilizing, particularly given the exit of some of the smaller players in the space?

Ed McGowan, Chief Financial Officer, Akamai: Yeah, so the CDN business, if I were to draw, I’ve been at the company for twenty five years, if I were to draw two lines, one would be up and to the right and the other one would be down and to the right. Down to the right is unit pricing, up and to the right is traffic growth. And really the business is that simple, it’s all about unit pricing and your traffic growth. And historically the internet was growing 30% plus. And for probably the first fifteen years of our existence, traffic was doubling every year.

We got to the point after the pandemic where we saw massive growth during the pandemic, but traffic started to moderate quite a bit. We saw, there wasn’t a lot of new streaming services, gaming was kind of weak. So traffic growth moderated more than we had expected. Therefore, we saw a decline in business. Now pricing started to moderate some, but unit prices still keep coming down.

We have seen a lot of our CDN competitors go out of business. They generally compete on pricing because it’s been about four or five that have exited the market. We’ve been a benefactor of that by buying some of those contracts from these players that have exited the market. So you do have a little bit less competition, but we are starting to see traffic pick up again, which is good. So we far exceeded expectations last quarter on CDN, still declining, but we’re getting down into the sort of mid to low single digits in terms of declines.

We think that that business ultimately is a kind of flattish to down a couple of points. It’s really a strategic asset for us. It produces a lot of cash. As Jonathan mentioned, we were able to move about a thousand people out of the CDN business into compute. So some of the engineers and the folks that build the build the platform.

So we’re able to get some better profitability out of that business. And as I talked about, we’ve run multiple services on our machine. So having the economic advantage you get by carrying a lot of traffic, the data that you get powers the businesses for security. So it’s very strategic. And also if you’re going to be in the compute business, all of the hyperscalers have some type of CDN, right?

So think about you’re now taking applications from on premise to putting them in a cloud, you’re introducing latency. So therefore you need some way of trying to deliver a performance application to your end users. And so having a CDN as part of a compute business is mission critical.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Yeah. Just on that last point around your CDN coverage, I mean, aren’t many of the hyperscalers also Akamai customers?

Ed McGowan, Chief Financial Officer, Akamai: They are. Yeah, as a matter of fact, nice thing about our business is we don’t have any 10% customers. We have, I guess, eight customers that are 1% of revenue or greater. And of those, the hyperscalers are in that bucket. So not all of them, but some of them are very big customers of ours.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Fantastic, fantastic. Why don’t we open it up to the audience for questions? We have a couple of minutes left. Anyone have any questions for Ed?

Ed McGowan, Chief Financial Officer, Akamai: Don’t be shy.

Jonathan Hoenn, Cybersecurity Analyst, William Blair and Company: Okay. I won’t keep everybody from lunch, and so thank you so much.

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