Akamai Technologies Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Company reported Q2 revenue of $1.043 billion (up 7% yoy) and non-GAAP EPS of $1.73 (up 9% yoy), exceeding guidance on revenue, margin, and EPS.
  • Positive Sentiment: Cloud Infrastructure Services (CIS) revenue grew 30% yoy to $71 million, with management projecting 40–45% ARR growth by year-end as large deals ramp.
  • Positive Sentiment: Security segment revenue rose 11% yoy to $552 million, driven by market-leading Guardicore micro-segmentation and API security solutions, with API and Zero Trust up 48%.
  • Neutral Sentiment: Delivery revenue declined 3% yoy to $320 million but showed sequential improvements in traffic growth and pricing, and management expects mid-single-digit declines moving toward stabilization.
  • Positive Sentiment: Q3 guidance raised to $1.035–1.05 billion in revenue (up 3–4% yoy) and full-year 2025 revenue to $4.135–4.205 billion, with non-GAAP EPS of $6.60–6.80.
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Earnings Conference Call
Akamai Technologies Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Second Quarter twenty twenty five Akamai Technologies Incorporated Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask question. To ask a question, you may press star then 1 on a touch tone phone. To withdraw your question, please press star then 2.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Mark Suttenberg, Head of Investor Relations. Please go ahead.

Mark Stoutenberg
Head - IR at Akamai

Thanks, and good afternoon, everyone, and thank you for joining Akamai's second quarter twenty twenty five earnings call. Speaking today will be Tom Layton, Akamai's Chief Executive Officer and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward looking statements, including those regarding revenue and earnings guidance. These forward looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC.

Mark Stoutenberg
Head - IR at Akamai

The statements included on today's call represent the company's views on 08/07/2025, and we assume no obligation to update any forward looking statements. As a reminder, we will be referring to certain non GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. With that, I'll now hand the call off to our CEO, Doctor. Tom Leighton.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Thanks, Mark. I'm pleased to report that Akamai had an excellent second quarter with results coming in above our guidance for revenue, margin and earnings per share. Revenue grew to $1,043,000,000 up 7% year over year as reported and up 6% in constant currency. Non GAAP operating margin was 30%. And non GAAP earnings per share came in at $1.73 up 9% year over year as reported and in constant currency, and $0.15 above the high end of our guidance range.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Our strong performance was enabled by the stabilization of revenue from our delivery product line, combined with the solid growth of our security and compute product lines, as we continue to reposition Akamai to take advantage of the tailwinds in these markets and the substantial opportunities associated with AI. I'm especially excited about the growth and opportunity we're seeing for our cloud infrastructure services portfolio. CIS revenue in Q2 was $71,000,000 percent year over year as reported and 29% in constant currency. We're projecting even faster growth throughout the remainder of the year as we start recognizing revenue from some large deals signed earlier this year. As a reminder, our cloud infrastructure services portfolio consists of the compute and storage solutions that we've developed based on Linode, along with our Edge Workers product and the ISV solutions running on our cloud platform.

Tom Leighton
Co-Founder, CEO & Director at Akamai

It's the high growth portion of our cloud computing product line, and it's where we're focusing our investments. Our rapid growth in cloud infrastructure services is driven in part by our customers' desire to get their compute instances closer to end users for improved scalability and performance, and by their need to reduce cost. This is particularly true for new Gen AI applications, which are increasingly being used to drive real time decisions, shape user experiences, and power operations. To attract and retain customers, businesses are developing a variety of AI based apps and agents for personalization, support, search, inference and other tasks. Akamai's globally distributed platform spanning more than 4,300 points of presence across 130 countries offers unique advantages for deploying such AI applications, bringing business logic and data to within milliseconds of end users globally and operating at a scale that provides a petabyte per second of throughput capacity.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Already, customers have deployed AI powered applications on Akamai Cloud for tasks such as image classification, image optimization, speech to text and speech to image, chatbots, inference engines, virtual fitting rooms, to name a few. Last month, we introduced our new AI gateway solution to customers at an event in London. This new solution is designed to address three of the biggest challenges that businesses encounter when they deploy large language models. AI that's too slow, too vulnerable to attack, and too expensive to run at scale. AI gateway acts as a smart traffic controller that sits between users and the AI services deployed by our customers.

Tom Leighton
Co-Founder, CEO & Director at Akamai

So now, instead of every AI request having to travel all the way to a centralized server, Akamai makes it possible to handle many of these requests closer to the user at the edge. Moving AI closer to the action makes each interaction faster, makes our customers' systems more energy and cost efficient, and ultimately allows our customers to deliver a vastly better experience for their users. The edge is also where Akamai deploys our security solutions, including our new firewall for AI that fights prompt abuse and model compromise, as well as our bot and abuse solutions that help our publishing customers monetize their content by monitoring and controlling access by AI scraper bots. AI gateway and firewall for AI are prime examples of how we're bringing our expertise at the edge to the cloud to make AI faster, more secure, and significantly more affordable. There are also good examples of the synergy between our new cloud computing capabilities and our security and delivery product lines, as customers buy cloud computing from Akamai alongside security and delivery.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Examples of the many contracts we signed in Q2 that included a large commit for our cloud infrastructure services are a three year 16,000,000 renewal and expansion agreement with one of the largest companies at the forefront of the AI revolution, a two year $28,000,000 agreement with one of the world's leading travel companies, a three year $18,000,000 deal with a leading internet platform in South Korea, a $19,000,000 deal with an Internet company in Japan, and a three year $10,000,000 agreement with one of the world's leading media companies. Turning now to security. Security growth was driven in part by the continued strong demand for our market leading Guardicore segmentation solution, as more enterprises relied on Akamai to meet compliance requirements and to defend against ransomware and data exfiltration malware. Ransomware remains a top financial and reputational risk for enterprises, as illustrated by the highly publicized attacks that took down several major retailers in Q2. According to news reports, one attack in April on a British retailer impacted operations for at least three months, costing the company an estimated $400,000,000 in lost revenue.

Tom Leighton
Co-Founder, CEO & Director at Akamai

And a retailer in The US reported $20,000,000 in lost sales when a cyber attack took down its e commerce platform during their Memorial Day weekend sale. In a world where attacks are finding new ways to penetrate traditional perimeter defenses, segmentation is the last and most important line of defense for major enterprises. And our market leading segmentation solution is making a big difference for our customers. With our sophisticated threat intelligence, we've detected a wide variety of malicious ransomware attacks on commerce companies. And customers who use our segmentation solution were able to identify these attacks and protect themselves from operational harm and financial loss.

Tom Leighton
Co-Founder, CEO & Director at Akamai

In fact, Akamai is the only vendor to be named customer favorite in the new Forrester Wave Zero Trust Platforms report, receiving perfect scores in three categories: segmentation and control, pricing flexibility, and supporting services. Our segmentation wins in Q2 included a $9,000,000 contract for Gardacor with one of the world's leading consumer and commercial insurance providers after Akamai demonstrated the fastest time to policy across their on prem, AWS, and Azure environments. A $5,000,000 contract with one of the world's largest financial services companies that selected Gardacor after struggling to modernize their environment for Zero Trust to protect aging networks for which they had no visibility. And a $3,000,000 contract, two thirds of which is for Gardacor with one of Japan's leading financial institutions. Wins in other industries included deals with a leading manufacturer in The US, a major steel producer in Asia, and a large holding company in Latin America.

Tom Leighton
Co-Founder, CEO & Director at Akamai

In Q2, we also continued to see strong interest in our market leading API security solution, which earned Akamai recognition as a leader in Kuppinger Cole's Leadership Compass API Security and Management Report released last month. Our API security solution combines very well with our market leading WAF and bot management solutions to provide a compelling platform for app and API protection for major enterprises. Major API security wins last quarter included a $15,000,000 agreement with one of North America's largest real estate fintech companies, which included $2,000,000 for API security. A $4,000,000 expansion contract with one of the largest managed care organizations in North America, which included $2,000,000 for API security. A $2,300,000 agreement with one of the largest life insurance providers in India, which included $1,400,000 for the protection of their API ecosystem, as they migrated away from their previous provider.

Tom Leighton
Co-Founder, CEO & Director at Akamai

And a $20,000,000 five year contract renewal with one of the leading fashion and home retailers in Europe that included seven Akamai security solutions in addition to compute and delivery. We're very pleased to see customers increasingly utilize the full breadth of our security platform across applications, APIs, infrastructure, and enterprise zero trust security. We believe this illustrates the strength of Akamai security defenses, the depth of our threat intelligence and our close relationships with enterprise customers who rely on us as a strategic partner in security, helping them consolidate their security spending with a major vendor they trust most to protect their businesses and reputations. Before I turn the call over to Ed, I'd like to say a few words of welcome to the two new directors on Akamai's board, Janaki Akela and Boss Berger. Janaki has held several executive roles at Google, including as lead for digital transformation for Google Cloud and chief of business operations.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Prior to that, she was a partner at McKinsey and Company. She brings deep expertise in cloud computing, cybersecurity, and AI, as well as general management and strategy consulting experience. Boss Berger is the CEO of BT International, the division of The UK telco company that delivers global data, voice, security and cloud connectivity solutions to multinational organizations. Boss brings expertise in leading complex global organizations, executing go to market initiatives focused on driving customer acquisition, retention and expansion, and building strategic partnerships with major technology infrastructure and cybersecurity providers. Their insights and counsel will be invaluable to us as we continue to innovate and expand our cloud computing and cybersecurity offerings and advance our go to market transformation to best capture future growth opportunities.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Now I'll turn the call over to Ed to say more on our Q2 results and our outlook for the rest of the year. Ed?

Ed McGowan
EVP & CFO at Akamai

Thank you, Tom. As Tom just mentioned, we delivered very solid second quarter results with total Q2 revenue of $1,043,000,000 which was up 7% year over year as reported and 6% in constant currency. We also had another quarter of very strong bottom line performance, with non GAAP EPS outperforming our guidance range by $0.15 This strong non GAAP EPS performance was driven by a combination of higher than expected revenue, lower than expected bandwidth costs, higher interest income related to the convertible debt issuance in May, and lower share count as a result of our stock buyback activity in the first half of the year. It's also worth noting that we received an unusually high amount of bandwidth and colocation credits during the quarter, resulting in a one time positive benefit of approximately $5,000,000 to gross margin in the second quarter. Moving now to revenue.

Ed McGowan
EVP & CFO at Akamai

Compute revenue was $171,000,000 up 13% year over year as reported and in constant currency. Compute revenue was driven by continued strength in our cloud infrastructure services, or CIS. CIS revenue was $71,000,000 up 30% year over year as reported and 29% in constant currency. As Tom noted, we expect the growth rate of our CIS business to accelerate throughout the rest of this year and into next year, driven by some large contracts signed earlier this year that will start generating revenue late this year and into 2026 and beyond. We continue to expect CIS ARR year over year growth in the range of 40% to 45% in constant currency at the end of the year.

Ed McGowan
EVP & CFO at Akamai

Revenue from other cloud applications, or OCA, was $100,000,000 up 4% year over year as reported and up 3% in constant currency. As we mentioned on our Q4 call in February, OCA includes many of our more mature compute products, such as Image and Video Manager, Cloudlets, and Legacy NetStorage. We expect the revenue from OCA to remain relatively flat quarter over quarter for the rest of this year. However, as a result of a $7,000,000 onetime benefit included in Q3 twenty twenty four's results, we anticipate that the year over year revenue growth rate for OCA will take a one time dip in Q3. As a reminder, this one time benefit was related to the release of some deferred revenue in conjunction with the expiration of a long term legacy compute contract.

Ed McGowan
EVP & CFO at Akamai

Putting this all together, we remain very excited about our opportunities for compute. Based on the timing of revenue recognition for the larger deals I mentioned earlier, our compute growth for 2025 could be a little less than our goal of approximately 15% in constant currency for the full year. Security revenue was $552,000,000 up 11% year over year as reported and 10% in constant currency. Within security, the combined revenue for API security and Zero Trust enterprise security was $67,000,000 up 48% year over year as reported, and 49% in constant currency. These results include approximately $8,000,000 of inorganic revenue from No Name.

Ed McGowan
EVP & CFO at Akamai

Excluding this inorganic contribution, year over year revenue growth would have been approximately 32%. We continue to expect security revenue growth of approximately 10% in constant currency in 2025, and we continue to expect the combined ARR for our Zero Trust enterprise and API security solutions to increase by 30% to 35% year over year in constant currency for 2025. Delivery revenue was $320,000,000 down 3% year over year as reported and down 4% in constant currency, well above our expectations. We're very encouraged by the continued improvements in both pricing and traffic growth we observed during the first half of the year. International revenue was $516,000,000 up 10% year over year or 8% in constant currency, representing 49% of our total revenue in Q2.

Ed McGowan
EVP & CFO at Akamai

US foreign exchange fluctuations had a positive impact on revenue of $17,000,000 on a sequential basis and a positive $8,000,000 impact on a year over year basis. Moving now to profitability. In Q2, we generated non GAAP net income of $251,000,000 or $1.73 of earnings per diluted share, up 9% year over year as reported and in constant currency and $0.15 above the high end of our guidance range based on the items I mentioned earlier.

Ed McGowan
EVP & CFO at Akamai

Finally, our Q2 CapEx was $214,000,000 or 21% of revenue. Moving to cash and our capital allocation strategy. As of June 30, our cash, cash equivalents and marketable securities totaled approximately $1,600,000,000 As a reminder, during the second quarter, we used cash on hand and funds available under our revolving credit facility to fully repay $1,150,000,000 of our outstanding convertible senior notes that matured on 05/01/2025. Following this repayment, we issued $1,725,000,000 in senior convertible notes with the maturity date of 05/15/2033, and with a coupon of 25 basis points. As part of the offering, we incurred net cost of $275,000,000 from note hedging and warrant transactions while concurrently spending 300,000,000 on stock buybacks. It's worth noting that in the second quarter, we used approximately $250,000,000 of the proceeds from this offering to pay off prior borrowings on our revolving credit facility. The net proceeds of approximately $900,000,000 from this offering have been invested in highly liquid marketable securities, currently yielding approximately 4% on a weighted average basis. As it relates to return of capital, as I just mentioned, we spent approximately $300,000,000 to buy back approximately 3,900,000.0 shares during the second quarter. We ended the second quarter with approximately $1,200,000,000 remaining on our current repurchase authorization.

Ed McGowan
EVP & CFO at Akamai

Year to date, we spent $800,000,000 to buy back approximately 10,000,000 shares. Going forward, our intention remains the same, to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M and A and share repurchases when market and business conditions warrant. Before I provide our Q3 and full year 2025 guidance, I want to touch on some housekeeping items. First, despite initial concerns, the likelihood of a complete TikTok ban in The U. S.

Ed McGowan
EVP & CFO at Akamai

Appears to be less likely. With this in mind, we are now including domestic revenue from TikTok in our Q3 and full year 2025 revenue guidance. Second, regarding compute revenue. As I mentioned earlier, last year's Q3 results included a onetime 7,000,000 benefit that will not reoccur in Q3 twenty twenty five. Third, as it relates to gross margin, we are projecting an increase in colocation and related costs starting in Q3, as we anticipate additional compute capacity coming online during the quarter.

Ed McGowan
EVP & CFO at Akamai

This will result in roughly a one percentage point increase in cost of revenue in Q3 compared to Q2. In addition, for our qualified compute partner sales, or QCPs, we occasionally bundle third party products as part of a total solution for customers. In certain situations, we must record the gross revenue from these sales and the associated costs. The gross margin on the partner resales is typically lower than our company gross margin. Therefore, as qualified compute partner revenue increases, we expect it will lower our overall gross margin.

Ed McGowan
EVP & CFO at Akamai

We anticipate the sales of QCP partner solutions will impact gross margins by approximately 70 basis points this year. It's worth noting the primary advantage of working with QCP partners is their solutions do help drive additional higher margin CIS revenue. Fourth, as we previously discussed, we are investing to strengthen our go to market approach. We're increasing our sales rep hunting capacity to be more proactive in finding and securing new business, and we're adding experienced specialists to help support the sales of our new security and compute products. In addition, we're also growing our channel organization to expand our partnerships and open up potential new revenue growth opportunities.

Ed McGowan
EVP & CFO at Akamai

These investments are crucial to our long term success, but it will take time for the incremental headcount to ramp and start delivering results. As a result, we anticipate that our operating margin in the second half of the year will be lower than in the first half. Finally, on 07/04/2025, President Trump signed into law the One Big Beautiful Bill Act. The act includes significant provisions such as the permanent extension of certain existing provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027.

Ed McGowan
EVP & CFO at Akamai

We are in the process of evaluating the act, but we do not expect it will have a material impact on our tax rate in 2025. So with those factors in mind, I'll move to our Q3 guidance. For Q3, we are projecting revenue in the range of 1,035,000,000.000 to $1,050,000,000 or up 3% to 4% as reported and up 2% to 4% in constant currency over Q3 twenty twenty four. At current spot rates, foreign exchange fluctuations are expected to have a positive $3,000,000 impact on Q3 revenue compared to Q2 levels and a positive $6,000,000 impact year over year. At these revenue levels, we expect cash gross margins of approximately 72% to 73%.

Ed McGowan
EVP & CFO at Akamai

Q3 non GAAP operating expenses are projected to be $327,000,000 to $332,000,000 We expect Q3 EBITDA margin of approximately 41%. We expect non GAAP depreciation expense to be between 139,000,000 to $141,000,000 and we expect non GAAP operating margin of approximately 28% for Q3. Moving on to CapEx. We expect to spend approximately $227,000,000 to $237,000,000 This represents approximately 22% of our projected total revenue. Based on our expectations for revenue and costs, we expect Q3 non GAAP EPS in the range of $1.62 to $1.66 This non GAAP EPS guidance assumes taxes of $54,000,000 to $55,000,000 based on an estimated quarterly non GAAP tax rate of approximately 19%.

Ed McGowan
EVP & CFO at Akamai

It also reflects a fully diluted share count of approximately 145,000,000 shares. Turning to the full year. For 2025, we now expect revenue of $4,135,000,000 to $4,205,000,000 which is up 4% to 5% as reported and 3% to 5% in constant currency. At current spot rates, our guidance assumes foreign exchange will have a positive $13,000,000 impact on revenue in 2025 on a year over year basis. For 2025, we're estimating non GAAP operating margin of approximately 29% as measured in today's FX rates.

Ed McGowan
EVP & CFO at Akamai

We anticipate that our full year CapEx will be approximately 20% of total revenue. And for the full year 2025, we expect non GAAP earnings per diluted share in the range of $6.6 to $6.8 This non GAAP earnings guidance is based on a non GAAP effective tax rate of approximately 19% and a fully diluted share count of approximately 147,000,000 shares. In closing, we're very encouraged by our strong first half financial performance marked by solid results across both the top and bottom lines. With that, I'll wrap things up, and Tom and I are happy to take your questions. Operator?

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If are using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star then 2.

Operator

At this time, we will pause momentarily to assemble a roster. The first question comes from Mike Sikos with Needham and Co. Please go ahead.

Mike Cikos
Senior Analyst at Needham & Company

Hey, guys. Thanks for taking the question here. Just wanted to come back to some earlier comments on the financials, but I know that we have the the updated view on compute. Can you just walk us through how the first half of the year transpired versus expectations and and why we're indicating how calendar 'twenty five could finish up some of this targeted fifteen percent that we've been talking to?

Tom Leighton
Co-Founder, CEO & Director at Akamai

Yes, I'll take the first pass at that. You know, so far this year, compute, and particularly, you know, cloud infrastructure services where we're focused and seeing really great growth, you know, is exceeding meeting and exceeding expectations. You know, we've signed a large number of customers at significant revenue. We are in a position, depending on when that revenue starts getting recognized towards the end of the year, would impact what our overall compute revenue would be for the year, but we do forecast 40% to 45% growth in ARR on a full year basis by year end. So a significant acceleration from where we are today, which is already doing extremely well at 30% growth on a number that, you know, is almost a 300,000,000 ARR. Ed, do you wanna add anything to that?

Ed McGowan
EVP & CFO at Akamai

Yeah. I think you covered it, Tom. I mean, it really just comes down to some of the large deals that were signed this year when they actually turn into revenue. So if it's a month or two late in terms of when the customers ramp up, that may potentially land revenue slightly below 15%. I think the big key takeaway here is that we feel very confident with the business that we've signed up that we're on a significant acceleration path for CIS revenue.

Mike Cikos
Senior Analyst at Needham & Company

Great. Thank you very much.

Operator

The next question comes from the line of John with Guggenheim. Please go ahead.

Lawrence Vensko
Analyst at Guggenheim Securities

Hey, everyone. This is Lawrence Fenskell on for John DiFucci. Just wanted to quickly touch on the delivery business. So you guys have been clear about the headwinds that you've been seeing for some time now, but it seems like the last two quarters, we've been ahead of where the street was expecting it to be. So if we think about the competitive environment pre pandemic and where it is now, do you think you're seeing an incremental benefit from the exit of some of your CDN peers in recent years and some of which that you've acquired assets from?

Lawrence Vensko
Analyst at Guggenheim Securities

And is this just an improvement in trends? And is this a sustainable improvement in trends? Any color there would be very helpful. Thank you.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Yes. There's a substantial difference in the competitive landscape pre pandemic and today. Four of our biggest competitors pre pandemic are gone. And we did pick up the contracts, the ones that we wanted from those customers. We've done a good job upselling and cross selling there.

Tom Leighton
Co-Founder, CEO & Director at Akamai

On top of that, the traffic trends overall, I think are improving and we're seeing that. So you get a combination of a little bit, better pricing environment. It's still competitive, of course, but not in a crazy way it was as, you know, as four companies were on their death throes, you know, just offering any price at all to get some business. And so as we look forward, as Ed talked about, we're looking at mid single digits declines. And over the longer term, we want it to be stable and steady and not see declines there.

Lawrence Vensko
Analyst at Guggenheim Securities

Got it. That's helpful and clear. Thank you.

Operator

The next question comes from Fatima Boolani with Citi. Please go ahead.

Analyst

Hey. Good afternoon, team. This is Mark on for Fatima. Thanks for taking the question. Maybe just want to touch on CIS again.

Analyst

Just in regards to the large contracts, you guys signed this early this year. Can you give a sense of the contract structure? Are there minimum commitments or firm demand that you see in the pipe that's really given conviction for on the second half growth acceleration? Just seems like, obviously, there's a big healthy ramp here to get to the 45% AR target. Thanks.

Ed McGowan
EVP & CFO at Akamai

Yeah, hey, is Ed. I'll take that one, Tom. So there's a number of different contracts that were signed. We've announced a couple of them, and both of the two largest ones have minimum commitments. And there is a ramp to the revenue throughout the year.

Ed McGowan
EVP & CFO at Akamai

And as we had said at the beginning of the year, we did expect this to be revenue later in the year. And now we've got, you know, better line of sight to it. But, you know, a lot of it depends on how quickly the customer will move the application and ramp it up. So we do have, like I said, very high confidence level in that revenue. There's three or four really large contracts that have been signed, all which have commitments. We feel pretty good about that.

Analyst

Great. And maybe just a follow-up. Does the 40% to 45% ARR growth target assume only the minimum commitment? Or what's sort of the building blocks here?

Ed McGowan
EVP & CFO at Akamai

Yes. So the way we define the ARR, just to make it simple for investors to follow, is we just take the Q4 times four as an ARR proxy. So, it wouldn't be the minimum commit necessarily. It would be whatever revenue that we were generating from those contracts within the particular quarter in Q4.

Analyst

Great. Thank you.

Operator

The next question comes from Frank Cloughton with Raymond James. Please go ahead.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Great. Thank you.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Can you us insight into the guide and to what extent is the uptick in the guide coming from including TikTok for the rest of the year? And then as a follow-up, the subdivision on the compute, can you maybe give us a little more color on what's going on in the part of that business besides Linode that's growing a little bit less? Thanks.

Ed McGowan
EVP & CFO at Akamai

Yes, sure. So in terms of the guidance, as we've disclosed for a while now, what The US revenue from TikTok is, it's about $40,000,000 40,000,000 to $50,000,000 So you can assume about half of that roughly given that we're giving guidance for the back half of the year is in the number. So as you can tell, the midpoint of the guide is up much more than that. So there's more to it than just the TikTok increase. It's really kind of strength across the board.

Ed McGowan
EVP & CFO at Akamai

And then your other question was in terms of the other cloud applications. If you go back to the last call we had where we talked about the other cloud applications and sort of broke it out for you, broke it into the different categories, image management, video management, the legacy net storage, cloudless apps, etcetera. There's a number of things going on underneath that business, some of which we are transferring some of that business to compute partners of ours in exchange for large commitments back on compute side. And then we go to market with those particular partners. So that's going to start to come off over time, say over the next twelve to eighteen months.

Ed McGowan
EVP & CFO at Akamai

Legacy NetStorage, we have a legacy platform. We had disclosed that number of around $50,000,000 on an annualized basis. We've got a new storage platform in node and computes part of the business and the CIS business. So, we're going to be end of lifing that business and that business will hopefully migrate over to CIS. As it does, we'll let you know.

Ed McGowan
EVP & CFO at Akamai

So we're not expecting a lot of growth. It is still growing. It's growing at 3% to 4%. But we're expecting that some of that revenue to decline over time just in line with what we had said in the past.

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

So of that amount that you're sending over to partners, can you quantify that? What is the total amount of that that's set to be transferred?

Ed McGowan
EVP & CFO at Akamai

Yes. So we haven't disclosed that. It's not overly significant. It's a smaller percentage of that total of the roughly $100,000,000

Frank Louthan
Frank Louthan
Managing Director at Raymond James Financial

Okay, great. Thank you.

Operator

The next question comes from Jackson Ader with KeyBanc Capital Markets. Please go ahead.

Jackson Ader
Jackson Ader
Managing Director at KeyBanc Capital Markets

Great. Good evening, guys. Thanks for taking our question. I wanted to just follow-up on two things regarding those large CIS contracts. Ed, you mentioned a couple of times, it kind of depends on when the customer moves the application over. I'm just curious, like how much visibility do you actually have or maybe control do you have in the movement of those applications? Are they waiting on Akamai to ready anything, to do anything? Or is it really all in the customer's court?

Ed McGowan
EVP & CFO at Akamai

Yes, it really depends on the particular customer. For example, with one of the larger contracts that we signed, there was a particular application that they had planned to move later in the year that was dependent on us building out some capacity. So as you think about my prepared remarks, we talked about adding some capacity in a location that wasn't in our initial plans to build, but we did build for that. So there was something that we did have to do. With other customers, generally, there's a period of time where they're running a proof of concept.

Ed McGowan
EVP & CFO at Akamai

Oftentimes, they'll have their own windows in which they want to move things. It could be a moratorium on their own end where they don't wanna move a particular application during a particular busy time, etcetera. So it really does depend. So I'd I'd sort of break it out this way. There were some things that we had to to do, and we're on schedule to perform all of our obligations.

Ed McGowan
EVP & CFO at Akamai

And then the rest is really just up to the customer. We do have a lot of communication back and forth with the customer have pretty good line of sight, but there's no guarantee that a customer is going to move exactly when you say they will. The good news is we're very confident with the overall size of the contract and we think these contracts have upside to them. It's just really a question of exactly what month are we going to start to recognize revenue.

Jackson Ader
Jackson Ader
Managing Director at KeyBanc Capital Markets

Got it. Okay. And then a quick follow-up. You mentioned how to make some investments maybe on the go to market side to try and drive a little bit more of these CIS contracts. Curious what the pipeline looks like heading into the second half for those. Thank you.

Ed McGowan
EVP & CFO at Akamai

You're about the pipeline for CIS or just the pipeline in general?

Jackson Ader
Jackson Ader
Managing Director at KeyBanc Capital Markets

For CIS specifically but if you want to answer in general too that would be great. Thanks.

Ed McGowan
EVP & CFO at Akamai

Yes sure. Yeah, so the pipeline for CIS is growing and it's we're seeing a couple of different things there. One, we're seeing participation from all across different verticals and different geographies, which is good. And we are seeing some some of our larger customers coming back with newer applications. So a little bit of the existing customer growth as well as a lot of new logo growth.

Ed McGowan
EVP & CFO at Akamai

And also, the size of some of these deals are larger than what we typically see in our security and our delivery business, which good as well. So I'd say it's a very healthy pipeline and continues to grow. And just across the business, I'd say it's fairly normal in terms of what we're seeing from a pipeline perspective. But the only call out that I would make is API security in particular is extremely strong. We're seeing very, very healthy growth in API security and a lot of demand for API security, especially with our web application firewall customers.

Ed McGowan
EVP & CFO at Akamai

It's a very natural upsell motion. So we're starting to see that pipeline grow significantly and a lot of deals come in as a result as well.

Jackson Ader
Jackson Ader
Managing Director at KeyBanc Capital Markets

All right. Awesome. Thank you very much.

Operator

The next question comes from Jonathan Ho with William Blair and Company. Please go ahead.

Jonathan Ho
Research Analyst - Technology, Media & Communications at William Blair

Hi. Good afternoon. I wanted to follow-up on that last comment around the security business. Can you maybe speak to what's driving the demand for both API and micro segmentation security? And maybe why are we not seeing stronger security revenue growth?

Jonathan Ho
Research Analyst - Technology, Media & Communications at William Blair

I know there's some legacy security components that are tied to delivery, but just wanted to maybe parse this a little bit and help us understand how the other two segments are performing.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Yeah. You know, there's a lot of greenfield in, both, API security and micro segmentation. And, you know, customers are now realizing they need to have security solutions there. You know, most major enterprises, literally a thousands of APIs exposed, and they don't have a good handle on what they are and what the vulnerabilities are, and that's we provide, the visibility and also the security. We have the market leading solution to do that, and so there is a lot of demand.

Tom Leighton
Co-Founder, CEO & Director at Akamai

You know, the same thing for micro segmentation, in some sense, more important. You know, the attack rates have gone up, the successful penetrations have gone up quite a bit, the damage from ransomware, as we talked about on the call, is extraordinary, incredibly expensive, And again, we've got the market leading solution with Gardacor. And so we are seeing very strong demand there and strong growth. Off of a nontrivial number, you know, we're looking at 30 to 35%, you know, ARR growth coming off, you know, over a quarter billion ending last year. And so, yeah, good reasons for the demand.

Tom Leighton
Co-Founder, CEO & Director at Akamai

And, of course, you think about the impact of Gen AI, one of the sort of bad impacts in general is that it really aids the attackers. And so I think that's part of why you're seeing so many more penetrations today. And micro segmentation is your last and best line of defense, and we've got an exceptional track record of protecting our customers there. And so I think that's why you're seeing the growth. Now, those are, you know, decent sized products now growing rapidly, but the overall security number, you know, running now at about 2,200,000,000.0, has a very large component from, you know, web app firewall, you know, our Prolexic DDoS solution, bot management, you know, WAF and and the scrubbing solutions have been, you know, out there for a while.

Tom Leighton
Co-Founder, CEO & Director at Akamai

They are growing, but at a slower rate. And so you have a slower rate of growth on, you know, a good sized chunk of the 2,200,000,000. And so that's why you don't, you know, see security as a whole growing, you know, at 20 or 30%. You know, it's growing in double digits, but, you know, we're we're looking more like 10% for now. Now, as you see API security and micro segmentation get bigger, then that 30% plus growth rate has more of an impact on the whole number.

Jonathan Ho
Research Analyst - Technology, Media & Communications at William Blair

Great. And maybe just as a follow-up, with your AI commentary, what kind of opportunity are you seeing there? And how do your solutions maybe compare with some of your major competitors, you know, that are, you know, really focusing on, you know, AI security and infrastructure? Thank you.

Tom Leighton
Co-Founder, CEO & Director at Akamai

Yeah. So, you know, we have a leading capability. It's very early days, of course, you know, for AI firewall. Now, of course, the first thing, there's a lot of new applications out there which need regular security protection, API security and web app firewall. And so that's helping, you know, certainly the AI security business.

Tom Leighton
Co-Founder, CEO & Director at Akamai

But a firewall AI in particular needs extra firewall capabilities to keep adversaries from successful prompt injection attacks, to keep the AI from doing something that it's not supposed to do. And so we developed a a very compelling capability there, just released. It's very early to market. And, you know, very good interest, you know, strong dozens of, you know, proofs of concept underway now and very positive customer feedback. And so it's really kind of it's unique in in the marketplace to protect the customer facing, the user facing AI application against those kinds of attacks.

Operator

The next question comes from Sanjit Singh with Morgan Stanley. Please go ahead.

Jonathan Eisenson
Jonathan Eisenson
Equity Research Associate at Morgan Stanley

Hi, guys. This is John Eisensen on for Sanjit. Thank you for taking my question. Great to see the solid results this quarter. And sorry if I missed this, but can you talk about the how much Edgeo contributed to your revenue in the quarter and how that's tracking relative to the 85,000,000 to $105,000,000 range you gave previously? Thank you.

Ed McGowan
EVP & CFO at Akamai

Yes, this is Ed.

Ed McGowan
EVP & CFO at Akamai

So we it gets a lot harder to track the exact contribution from Edge O just given that there is a lot of customer overlap. So as you have some of your larger customers that are growing, see we saw a great traffic growth in video and software download, which drove upside in traffic. Hard to say how much of that's related to Edgeo versus what's related to Akamai. But I would say in general, the Edgeo acquisition is tracking just as we had hoped. And obviously, the category of overall delivery is doing better.

Ed McGowan
EVP & CFO at Akamai

So you could probably assume we're doing a little bit better kind of on the higher end of that range perhaps. But we're also starting to see some upsell of some of the new customer logos that we acquired as well. So I would say the thesis that we had in doing that acquisition is playing out just like we had hoped. We are seeing better trends in the industry, as Tom mentioned, both with pricing and with traffic growth. So again, I don't have an exact number for you because it gets very hard to track the exact number, but I'd say it's tracking along just as we had hoped, maybe even a little bit better.

Jonathan Eisenson
Jonathan Eisenson
Equity Research Associate at Morgan Stanley

Understood. Very helpful. Thank you.

Operator

The next question comes from Jeff Van with Craig Hallum. Please go ahead.

Daniel Hibshman
Research Analyst at Craig-Hallum Capital Group LLC

Hey, Tom, Ed. This is Daniel Hibschman on for Jeff Van Rhee. Just on the delivery, another great quarter and another question on that. Just to set the stage, I think on delivery, we haven't had a sequential growth quarter other than obviously Q4 is show growth seasonally, but we haven't had outside of Q4 is a sequential growth quarter since as I see Q2 twenty twenty. So now Q1 twenty twenty five, Q2 twenty twenty five, we had two sequential growth quarters.

Daniel Hibshman
Research Analyst at Craig-Hallum Capital Group LLC

Really great to see that trajectory very, very different from what we've seen for years and trying to understand a little bit better. I mean, I assume on Q1 twenty twenty five, you have a full quarter of AGEO. So that's the driver. But for this quarter, is there anything about AGEO leading into Q2 inorganically that's benefiting the quarter? I mean, in terms of the market landscape in a really a more significant way to call out?

Daniel Hibshman
Research Analyst at Craig-Hallum Capital Group LLC

Or is this something onetime about what we're seeing here?

Ed McGowan
EVP & CFO at Akamai

Yeah. So I'd say it's a couple of things. One, it's not an NGO onetime item or anything like that because you're correct. By we migrated that traffic very, very quickly. That was one of the benefits of that.

Ed McGowan
EVP & CFO at Akamai

We were able to migrate that over very, very quickly in the first quarter. Actually, January, we were or mid January, we're done. So you don't have any sort of inorganic contribution per se related to Edgeo. The really the if I look at the traffic growth that was surprising to us, it was higher than expected and not quite back to the, you know, what we used to see sort of pre pandemic, but much healthier traffic growth. And it was across a couple different verticals.

Ed McGowan
EVP & CFO at Akamai

And I called out software downloaded video. Video is the biggest category of traffic. So that was good to see. And then we do track a pricing metric where we look at our overall pricing as a whole. We get our traffic revenue over our, you know, our overall traffic and that has continued to moderate.

Ed McGowan
EVP & CFO at Akamai

It's still declining as Tom mentioned, but it's not declining as rapidly as it has. And those are the two ingredients you need for a healthier delivery business. So, you know, it could be, you know, just the industry in general is going through, you know, a better time in terms of, you know, popularity of content, that sort of thing. There is a little bit less competition out there now, obviously. But I'd say it's more of a healthier market than we've seen in the last, say, year or two.

Daniel Hibshman
Research Analyst at Craig-Hallum Capital Group LLC

Thanks, Ed.

Operator

The next question comes from Rudy Kissinger with D. A. Davidson. Please go ahead.

Andres Miranda Lopez
Equity Research Associate at D.A. Davidson

Hi. Thanks for taking my question. This is Andres Miranda for Rudy. I just have a quick one. What would have been compute revenue growth if we adjust for the headwind from the legacy compute revenue that you guys transfer to partners? Is that something you can quantify for this quarter?

Ed McGowan
EVP & CFO at Akamai

Yes. So it wouldn't make a significant difference. Because if you look at just an aggregate, we broke that revenue out for you at the end of the year. It's down slightly. So it would have a very minimal impact.

Andres Miranda Lopez
Equity Research Associate at D.A. Davidson

Sounds good. Thank you.

Operator

Thank you. This concludes our question and answer session. The conference now has concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Analysts
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