Dr. Tom Leighton
Chief Executive Officer and Co-Founder at Akamai Technologies
Thanks, Mark. I'm pleased to report that in the second quarter, Akamai delivered continued strong momentum in compute, strong growth in our security portfolio, steady operating margins and healthy earnings growth on the bottom line. Second quarter revenue grew to $980 million, up 5% year-over-year as reported and up 6% in constant currency. Non-GAAP operating margin was 29%. Non-GAAP earnings per share was $1.58, up 6% year-over-year and up 9% in constant currency. These results are in line with or above our guidance.
Before I provide more color on our performance, I'd like to review how Akamai is evolving as we grow. As most of you know, Akamai first made its name with the invention of content delivery services, and we're still the world's leader in that market today. We stand out for providing the scale and performance required by the world's top brands as we help them deliver reliable, secure and near flawless digital experiences. Recent examples were delivering the Euro's football tournament and the summer games in Paris for top broadcasters around the world. As we've said in previous calls, our delivery business has been challenged in recent quarters by macroeconomic and geopolitical headwinds.
Our plan for delivery is threefold. First, we will remain disciplined when it comes to the profitability of traffic that we choose to serve. Second, we will continue to leverage our market leadership position and installed base of major enterprises to generate cross-selling opportunities. And third, we will continue to take steps to retain our market leadership while also reinvesting most of the cash flow from our delivery product line into the fast-growing areas of the business. In Q2, delivery accounted for one-third of our revenue or $329 million. This is quite a change from five years ago when delivery accounted for two-thirds of Akamai revenue.
The diversification of our revenue across new markets through continuous innovation has long been a core part of Akamai's strategy for long-term profitable revenue growth. A little more than a decade ago, we expanded our business into security with the creation of Web App Firewall as a cloud service. We did this to meet what we recognized as a growing customer need. In a way that was complementary to what Akamai was already doing for customers with delivery. The opportunity was clear to us because we listen to our customers. We created what has proved to be a very successful cloud service for Web App Firewall.
And now for the first time in Akamai history, Security delivered the majority of Akamai's revenue. $499 million in Q2, up 15% year-over-year and up 16% constant currency. This amounts to an annual run rate of about $2 billion per year. Of course, we greatly expanded our security product set over the years. We now offer market-leading solutions for DDoS prevention, bot management, account and content protection, app and API security and Zero Trust enterprise security led by our Guardicore segmentation solution. Customer interest in our security solutions is strong and we had many significant wins in Q2.
One of the world's largest energy companies became a new Zero Trust customer with Akamai. One of the top three airlines in the US is moving from a legacy VPN architecture to a Zero Trust with Akamai. We provided Akamai app and API protector to one of the largest providers of HR management software and services in the US. And to German retailers to Life, Douglas, Bodner and Zalando. EPAFLEX, the German maker of high-speed industrial doors purchased our segmentation solution as did a major stock exchange and a leading cybersecurity company in Latin America.
We provided DDoS protection to one of the largest banks in the world and to a government ministry in the Middle East. And at one major electric utility in Southeast Asia, we replaced a well-known competitor in a five-year deal for our Web App Firewall, DDoS protection, bot management, account takeover prevention and API security. We're especially excited about the most recent additions to our security portfolio. In Q2, we announced our new Akamai Guardicore platform.
The first of its kind to enable Zero Trust security through a fully integrated combination of micro segmentation, Zero Trust Network access, multifactor authentication, DNS firewall and threat hunting. Its single agent and unified control console powered by Gen AI are designed to strengthen and simplify enterprise security with broad visibility and granular controls. The new Gen AI interface enables our customers' operations teams to ask questions in a human language to gain information about their enterprise networks.
The new Akamai Guardicore platform reflects our evolution as a security vendor, growing beyond point solutions to a broader and more comprehensive security offering. Customers tell us they want to consolidate security products and tools with vendors they can trust, and we think this will appeal to their needs. In Q2, we also closed the acquisition of Noname Security, as we accelerate our momentum in the fast-growing API security market. IDC forecast this market will grow at a CAGR of 34% to nearly $1 billion by 2027. With Noname, we believe that Akamai now has one of the most comprehensive API security solutions in the industry.
Within two weeks of the close, Akamai offered Noname customers, our new Edge connector. And integration with Akamai web app and API protector that works with a click of a button. Noname saw a significant increase in closed deals in Q2, and including wins at some of the largest banks and insurance companies in North America and at leading software companies in Europe Asia. We're also beginning to see a good upsell motion with early Noname adopters. For example, one of the largest US health care insurers more than doubled their Noname contract in Q2 to over $1.7 million annually.
About a decade after we entered the security market we again expanded Akamai's future opportunity by developing a much broader offering in cloud computing. As many of you know, Akamai has offered function as a service in our Edge platform for many years. This kind of edge computing has been used by thousands of our customers, and it is deeply integrated into our delivery and security services. But our customers ask for more, they wanted us to offer full stack cloud computing so that they can run their VMs and containers on the Akamai platform.
And they wanted us to do it in a way that would be more efficient and less costly than comparable offerings provided by the hyperscalers. They wanted Akamai to do this because they were already delivering and securing their sites and apps on our platform. They like our track record of reliability, and they knew they could trust Akamai to be a good partner. Many of them also like the fact that we don't compete against them unlike hyperscalers. Adding cloud computing to our portfolio also makes good sense for Akamai.
In addition to satisfying customer demand, we can reap the advantages from offering customers delivery, security and compute on the same platform. The synergies include; improved performance; seamless integration other operational efficiencies; bundling for cross-selling and strong customer retention; increased margins for all of our services, deepening relationships with carrier networks; capacity to quickly detect and stop massive cyber attacks at the edge; unmatched visibility into enormous volumes of traffic and the security insights and threat intelligence that we gain as a result.
If you step back and look at how the marketplace has evolved, you can see how the hyperscalers have worked to achieve a similar suite of offerings, although they've taken a different route to get there. They started with cloud computing and infrastructure as a service and then moved into security and delivery, validating our view that there is synergy in offering customers all three together. The hyperscalers also have a more centralized architecture. While Akamai has the world's most distributed cloud platform, with more than 4,100 points of presence in over 700 cities across 130 countries.
We believe that being more distributor provides customers with better performance, better economics and greater reliability. As we reported in our last earnings call, the initial response from customers to our new cloud offering has been very encouraging. The strong early momentum that we achieved in Q1 continued in Q2 with compute revenue growing to $151 million, up 23% year-over-year and up 24% in constant currency.
New compute customers added in Q2 include one of the world's best known media and entertainment brands based here in the US, the European cybersecurity company, Sekoia.io. Claro Video, the video brand of the biggest telco in Latin America, MwareTV, a technology platform for IPTV and OTT services. In a cable satellite IPTV provider that reaches almost half the households in Australia. Customers are also leveraging our ISV partners which we call qualified compute to run low latency workloads on our compute platform.
These include solutions for observability into workload behavior, cybersecurity and large-scale events, where the need to store very large sets of data makes Akamai a more attractive and cost-effective option than competitors. Our media customers can now take advantage of a full suite of media workflow offerings on Akamai Connected Cloud, which provides valuable synergy with our delivery platform for more efficient image manipulation, decisioning and video transcoding.
And with Akamai's latest qualified compute partner and customer Yospace, media companies around the globe can leverage their advanced ad tech and ad strategies at scale across the Akamai Connected Cloud. Customers are also building new apps on our platform where low latency data distribution and processing provides a better user experience for their customers at significantly reduced cost. One customer is training and testing the machine learning engines that power their security scanning product.
Another is building an AI-powered chatbot application to improve their customer experience and streamline operations with intelligent conversational customer engagement. Such AI-powered applications are increasingly popular with recent advances in large language models. Akamai is also a very large user of our new cloud solution. As a result of migrating most of our own apps from the hyperscalers to Akamai Connected Cloud, we're seeing better performance and greatly reduce cost.
In fact, we expect to reduce our spending on third-party clouds to less than one-third of what it would have been this year and we stayed on the hyperscalers, saving us well over $100 million in annual opex. It sure feels good, not writing a 9-figure check to your competitors every year, and this is a feeling that we look forward to providing to our large enterprise customers. In summary, Akamai has undergone a fundamental transformation. We transformed from a content delivery pioneer into the cloud company that powers and protects life online.
Compute and security now generate two-thirds of our revenue, and we believe that they provide Akamai with excellent potential for future growth and profitability. And we've achieved this transformation while successfully maintaining robust margins because both of our fast-growing product areas, our large security portfolio and our rapidly growing cloud computing portfolio, are built upon and enabled by the foundation of our business, our highly efficient and massively distributed delivery platform.
Our near-term operating margin goal remains 30%, and we see potential margin upside over time as the fast-growing areas of the business expand our profitability. Looking back at the first half of 2024, we're pleased by our strong performance in security and compute. Looking ahead, we're very excited about our potential for future growth as we integrate Noname and is our fast-growing compute offerings continue to gain traction with customers.
Now, I'll turn the call over to Ed for more on our Q2 results and our outlook for Q3 and the full year. Ed?
