Akamai Margins Compress as Cloud Buildout Spending Surges
Akamai Technologies swung to a 27% year-over-year decline in GAAP earnings per share to $0.52 as capital spending tied to its cloud infrastructure push jumped to 32% of revenue.
Akamai Technologies (AKAM) reported second-quarter revenue of $1.100 billion, up 5% from a year earlier, as growth in its newer cloud infrastructure business failed to offset a widening decline in its legacy content delivery segment and margins compressed sharply. GAAP earnings per share fell to $0.52 from $0.71 in the prior quarter, a 27% year-over-year decline that outpaced the 13% drop reported in the first quarter.
The quarter marked a continuation of a slowdown that has now stretched across three periods: total revenue growth decelerated to 5% from 6% in the first quarter and 7% a year earlier. The deceleration was broad-based. Security revenue growth slowed to 10% from 11%, and the delivery and other cloud applications segment, Akamai's oldest business line, saw its revenue decline worsen to 6% from 5% in the prior quarter, extending an erosion that has persisted for several quarters.
Cloud Infrastructure Services remained the exception, with revenue climbing 39% year-over-year to $99 million, essentially matching the 40% pace set in the first quarter and continuing to lead all segments in growth. The company disclosed a new enterprise contract worth more than $600 million over four years in the quarter, following a $1.8 billion, seven-year deal with a frontier AI model provider signed in the first quarter, bringing cumulative multi-year cloud contracts signed year-to-date to more than $2.8 billion.
That growth came at a cost to profitability. GAAP operating margin fell to 7% in the second quarter, down four percentage points sequentially and eight points from a year earlier, while non-GAAP operating margin slipped to 25% from 26% in the prior quarter and 30% a year ago. Adjusted EBITDA margin has now declined for three consecutive periods, from 43% in the second quarter of 2024 to 40% in the first quarter of this year and 38% in the second quarter. Net income margin fell to 7%, down from 10% in both the prior quarter and the year-earlier period.
Capital expenditures drove much of the margin pressure. Capex as a share of revenue jumped to 32% from 19% in the first quarter and 21% a year earlier, with total spending rising to $346.5 million from $206.3 million sequentially as Akamai accelerated the build-out of its cloud infrastructure capacity. To fund that spending, the company issued $3.45 billion in new convertible notes during the quarter, following a $2.6 billion convertible offering announced between quarters, pushing its cash and marketable securities balance to $4.616 billion from $1.733 billion at the end of the first quarter. Convertible senior notes outstanding roughly doubled year-to-date, rising to $7.563 billion at June 30 from $4.105 billion at the end of 2024.
For the full year, Akamai narrowed its revenue guidance to $4,445 million to $4,530 million, trimming the top end of its prior range by $20 million while leaving the midpoint roughly unchanged. Full-year non-GAAP earnings guidance was cut at both ends, to $6.40 to $7.05 a share from $6.40 to $7.15 a share previously.
Despite the margin pressure, Akamai increased its pace of share buybacks, spending $410 million to repurchase roughly 3 million shares at an average price of $134.54, up from $206 million spent in the first quarter at an average price of $105.47. Headcount grew to 11,540 employees from 11,419 at the end of the first quarter and 10,944 a year earlier, while restructuring charges rose to $1.825 million from just $0.183 million in the first quarter, though still below the $3.103 million recorded in the second quarter of 2024.