Q4 2020 Akamai Technologies Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience, ladies and gentlemen, todays conference is scheduled to begin shortly please continue to stand by on thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the queue for 2020, Akamai Technologies, Inc. Earnings Conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press.
Star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Tom Barth head of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for joining Akamai fourth quarter and fiscal year 2020 earnings conference call.
Speaking today will be Tom Leighton, Akamai, Chief Executive Officer, and Ed Mcgowan optimized Chief Financial Officer.
Before we get started please note that today's comments include forward looking statements, including statements regarding revenue and earnings guidance.
Forward looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.
The factors, including stemming from the COVID-19, pandemic and any impact from unexpected geopolitical development of.
Additional information concerning these factors is contained in Akamai filings with the SEC, including our annual report on 10-K and quarterly reports on form 10-Q.
The forward looking statements included in this call represent the company's view on February nine 2021, Akamai disclaims any obligation to update these statements reflect future events or circumstances.
As a reminder, we'll be referring to some non-GAAP financial metrics during today's call of <unk>.
Detailed reconciliations of GAAP and non-GAAP metrics can be found under the financial portion of the Investor Relations section of Akamai Dotcom and with that let me turn the call over to Tom.
Thanks, Tom and thank you all for joining US today I'm pleased to report that Akamai delivered excellent results for both of the fourth quarter and the full year.
Despite of the extraordinary challenges that we all face in 2020.
Q4 revenue was $846 million up 10% over Q4 of 2019.
8% in constant currency.
This strong result was driven by the continued rapid growth of our security business.
<unk> high traffic.
Intelligent edge platform.
Non-GAAP operating margin in Q4 was 30% of <unk>.
One point over Q4 in 2019 and.
For Q4, non-GAAP EPS was $1.33 per diluted share on eight.
<unk>, 8% year over year and up 6% in constant currency.
For the full year past our expectations of the Tom.
Oh.
Setting new records for our business and positioning us well for future.
Full year of 2020 revenue was $3 $2 billion up 11% over the prior year on constant currency topping the $3 billion Mark for the first wind in our history.
We're especially pleased to report that we expanded non-GAAP operating margin to 31% for 2020 over achieving our target of 30%.
This is up dramatically for 24% of 2017.
I think it's worth noting that we achieved this expansion over the past three years, while also investing for future growth.
Non-GAAP EPS for 2020 was $5 of 22 per share of <unk>.
16% of over 2019, and exciting exceeding $5 per share for the first time.
We also generated $1 $2 billion of cash from operations last year up 15% over 2019, and representing 38% of Robert.
Our security portfolio continued to be the fastest growing part of our business in Q4 generating revenue of $296 million up 23% year over year on constant currency.
For the full year security revenues exceeded $1 billion and grew 25% over 2019.
This puts of Akamai and we're a company that's new firms generate more than $1 billion of annual revenue for cyber security solutions and fewer still grew at 25% last year.
Security represented one third of our revenue last year, which is up 29% for 129% in 2019 and 24% in 2018 book.
Bookings were especially strong for our Prolexic service in Q4, as we've helped thousands of major enterprises defend against a huge wave of branch of Ddos attacks that began in Q3.
Ddos protection has been a mainstay of our portfolio for years, there has never been more relevant for customers.
We also saw strong bookings for our bot manager solution.
Manager helps defend against credential abuse of attacks, which are about four times greater than 2000 twenty's of the year before.
2020 was also a strong year for innovation with the release of page integrity manager and secure web gateway bookings for both of Rockwood excellent start as enterprises increasingly EBIT deal with malware on third party software and applications.
The addition of secure web gateway for our enterprise threat Protector service better position adjusted compete of the fast growing enterprise security of them.
We were also pleased to close our acquisition of philosophy of Q4, which helps advance our security capabilities for cellular devices and networks. New also the customer signed after the integration included National Health Agency, which adopted as of April to secure its COVID-19 vaccination application.
Digital programs nonprofit organization that works for close to a digital learning GAAP for students of equitable access to technology.
Our media and carrier Division also delivered a strong fourth quarter as a result of continued high levels of traffic for OTT video services downloads of eight gaming software.
On November 10 traffic on the Akamai platform reached an all time high of 181 Terabits per second 50% greater than 2019.
Nobody in the marketplace comes anywhere close to where our capacity to serve customers at the edge on a global scale. In fact, we have already exceeded last year's traffic peak just last week.
On the application performance side of the business Q4 was a crucial quarter for E commerce with major buying events, such as Black Friday in singles day.
Well matched reliability scale global reach and security of our intelligent edge platform is of major reason why 40 of the world's top 50 retailers in 23 of the top 25 in the U S use akamai to accelerate their commerce applications.
Overall, we're very pleased with our performance last year on both the top and bottom line and I want to thank our employees for enabling akamai to achieve such strong results as they cope with the challenges of the pandemic.
As we look for the future, we see substantial opportunity for enterprises to increase their use of the akamai intelligent edge platform we.
We believe the Ed she is where new applications of new business models will come July.
We're on intelligence will be built into how data is collected and analyzed.
The promise of <unk> and Iot will be realized.
Security will provide the online worlds first and most important line of defense.
To better take advantage of these opportunities and to better serve our customers, we announced today that will be realigning our organization around two major groups of products.
Products that enable business online and products that protects business on.
Both product groups will be supported with a single unified sales organization.
Products that enable business online will be the focus of our new edge technology group, which will be led by Adam Carron COO of general manager.
This group will be responsible for our media delivery web performance and edge computing solutions as well as the edge platform that underpins everything we do.
These products generate about two thirds of our total revenue today with strong margins and cash generation to fuel innovation firepower.
The group's mission is twofold for.
First to ensure that our edge platform remains the unparalleled market leader for scale performance reliability ease of use of agility and cost.
Second the generate additional growth for the innovation of new products and services for emerging customer needs in areas, such as Iot for <unk> and sort of less computing.
Products that protect business online will come together in a new security technology.
Led by Rick Mccombie, as President and General manager.
This new group will be responsible for all of our security solutions, including our market, leading web security products, such as Kona site defender Prolexic.
Prolexic, our enterprise security products, such as enterprise application access and enterprise threat protector.
And our carrier security products, such as our DNS based security business offerings, and our new secure mobile service for positive.
In 2021 will go to market with a unified global sales organization to better serve our customers deepen our channel relationships and provide our customers and partners of easier access for the full breadth of our portfolio.
P J Joseph who previously led our sales for media and carrier.
Global sales reporting to me.
As part of the new alignment Bobby Blue box will become our Chief Technology Officer.
Guide innovation of being evangelists for our technology vision and leadership in the marketplace.
Kim save of Jackson, who has successfully led Akamai field marketing and global communications for the last three years will become our new Chief marketing officer as part of our plan on transition.
Kevin will succeed Monique Bonner, who has done a fabulous job of transforming our marketing organization over the last for years.
We will stay on with Akamai is a senior advisory role, which will allow her to devote more time for family plus still ensuring the success of key marketing initiatives currently underway.
You can read more about our organizational announcement in the press release issued today and you'll be able to hear directly from our leadership team at our Investor Summit on February 25th.
And will outline our strategy and plans to drive Akamai. This next phase of growth.
Akamai made amazing contributions to the world of 2020.
Really the best is yet to come.
Looking ahead, we have the potential to greatly expand our business and enterprise and carrier security as we strive to further grow our leadership position of web secure.
We plan to grow the capacity of our unparalleled intelligent edge platform. My another order of magnitude as we continue to improve our market leading performance and reliability.
We seek to bring innovative new services to market to support emerging Iot and several of its computing dislocations.
We want to help enable the world take advantage of the incredible potential of hygiene.
And we will continue our efforts to build value for our shareholders with our world class talent technology leader.
Strong profitability and cash generation to fuel our future growth.
Now I will turn the call over to Ed to provide further details on our 2020 results on the outlook for 2021 Ed.
Thank you Tom as Tom outlined Akamai delivered another excellent quarter in Q4.
We were very pleased to exceed the high end of our guidance range on revenue and earnings Q.
Q4 revenue was $846 million up 10% year over year for 8% in constant currency.
Driven by another quarter of very strong security growth higher than expected gaming traffic.
On the weaker U S dollar.
Revenue from our web division was $438 million up 5% year over year of 4% in constant currency.
Revenue growth for this group of customers was again led by our security business and while we saw stronger than expected seasonal traffic growth from some of our retail commerce customers other customers in this vertical and in our travel and hospitality vertical continued to be negatively impacted by the pandemic.
Revenue from our media and carrier Division was $408 million.
Up 15% year over year for 2014% in constant currency.
As noted we benefited from higher than expected gaming and video traffic along with continued momentum in security.
Revenue from the Internet platform customers was $58 million up 11% from the prior year and above our expectations due to higher than expected traffic.
Security revenue for the fourth quarter was $296 million of 24% year over year and 23% in constant currency.
Driven by continued global demand across our web security product portfolio and higher than expected revenue from our recently closed most of the acquisition.
So if he contributed approximately $8 million in Q4.
Driven by a combination of much better than expected strength in the educational vertical.
Faster than expected revenue ramp from a recently added carrier in the U S.
Foreign exchange fluctuations had a positive impact on revenue of $6 million on a sequential basis and positive $9 million on a year over year basis.
International revenue was $379 million of 16% year over year or 13% in constant currency.
Sales on our international markets represented 45% of total revenue in Q4 up three points from Q4, 2019, and consistent with Q3 levels.
Finally revenue from our U S market was $467 million up 5% year over year.
Moving now to costs cash gross margin was 76% in line with our expectations GAAP.
Gross margin, which includes both depreciation and stock based compensation was 64%.
Non-GAAP cash operating expenses for $280 million slightly above our guidance in part due to higher sales commissions given the revenue outperformance we saw in Q4.
Moving on to profitability adjust.
Adjusted EBITDA was $364 million of $45 million of 14% from the same period in 2019.
Our adjusted EBITDA margin was 43% of two points from Q4 2019.
Non-GAAP operating income was $256 million up $34 million or 15% from the same period last year.
Non-GAAP operating margin came in at 30% up one point from last year and in line with our guidance.
Capital expenditures in Q4, excluding equity compensation and capitalized interest expense of $195 million.
GAAP net income for the fourth quarter was $113 million for 68 68 cents of earnings per diluted share.
It is worth noting that our Q4 GAAP results include two onetime items.
$27 million restructuring charge, primarily related to the company realignment of Tom mentioned.
And a $20 million additional endowment for the Akamai Foundation.
Non-GAAP net income was $220 million for $1 33 of.
Earnings per diluted share.
8% year over year up 6% in constant currency and one cents above the high end of our guidance range due to higher than expected revenues.
Taxes included in our non-GAAP earnings were $39 million based on the Q for effective tax rate of approximately 15%.
Now I will discuss some balance sheet items as.
As of December 31 of our cash cash equivalents marketable securities totaled approximately $2 5 billion.
After accounting for the $2 3 billion of combined principal amounts of our two convertible notes net cash was approximately $197 million as of December 31st.
Now I'll review our use of capital.
During the fourth quarter, we spent $73 million to repurchase shares buying back approximately 700000 shares. We ended Q4 with approximately $572 million remaining on our previously announced share repurchase authorization.
Our long term plan remains to leverage on our share buyback program to offset dilution, resulting from equity compensation overtime.
I'm very proud of all of our employees, who delivered these outstanding Q4 of 2020 results, especially during a very challenging year for Russell.
Now before I provide guidance I thought it'd be helpful to talk about how we see the year unfolding and highlight some key items you may want to consider as you build your models.
Our revenue outlook assumes that the pandemic related impacts to areas like work from home and travel will last at least for the first half of 2021.
As a result, we expect to see continued challenges in our retail and travel verticals for.
From a traffic perspective as life returns to a more normalized pre pandemic state we do not expect to see our traffic on our platform decrease we believe the pandemic has accelerated consumer usage of the interest in areas like OTT video gaming and E Commerce, and we believe this usage pattern will likely persist.
Going forward however.
However, we expect to see traffic continued to grow in 2021, but at a rate more in line with pre 2020 historical levels.
In addition to revenue for some other items, we expect in 2021 set of worth calling out.
First in 2020, our travel and related expenses for much lower than normal our guidance assumes that these expenses begin to return to a more normalized level beginning in the second half of 2021.
Second in light of the recent.
Decline in interest rates, we expect our interest income to decline on a year over year basis, specifically, we expect interest income to be about $8 million lower year over year, which will have a negative impact of about five.
On a non-GAAP.
Earnings per share compared with 2020.
Third I wanted to remind you of the typical seasonality that we experienced on the top and bottom lines in the first quarter, we usually see of revenue step down sequentially from Q4, a strong seasonal quarter.
Also in Q1 remember that our employee payroll taxes of four when cash 401 matching programs reset these costs will decline throughout the year as employees begin to Max out.
Finally, as Tom mentioned earlier, we are reorganizing the company around a product driven group structure and moving away from the current vertically aligned division structure.
In Q1, we will report revenue results under the new edge technology and security technology groups as Tom outlined the revenue splits will look familiar to you.
They align to our current CDN and other on cloud security revenue reporting so we have historically provided.
To assist with the transition we will continue to report web and media and carrier Division results on our website for the balance of 2021.
And finally as a result of the reorganization, we expect to record an additional restructuring charge of approximately $7 million from Q1.
Looking ahead to full year, we expect revenue of 3.37 to three for $2 billion, which was up 4% to 6% year over year in constant currency.
This outlook assumes that foreign exchange contributes about $45 million on a year over year basis.
We expect security revenue growth in the range of 18% to 20% over 2020 levels.
We also expect non-GAAP operating margin of approximately 30%.
We expect non-GAAP earnings per diluted share of $5 33 to $5 46.
And this non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 15%.
Fully diluted share count of approximately 165 million shares.
Finally full year Capex is expected to be approximately 16% of revenue. This is down seven points year over year as we expect to leverage the significant network capacity investment we made in 2019 and 2020.
Moving on for Q1 guidance, we are projecting Q1 revenue on a range of $822 million to $836 million were up 5% to 7% in constant currency over Q1 2020.
The current spot rates foreign exchange fluctuations are expected to have a positive $4 million impact.
On Q1 revenue compared to Q4 levels on the positive $16 million impact year over year.
These revenue levels, we expect cash gross margins of approximately 76%.
Q1, non-GAAP operating expenses are projected to be $265 million to $270 million.
We anticipate Q1 EBITDA margins of approximately 44%.
Now moving on to depreciation we have.
Non-GAAP depreciation expense to be between $111 million to $112 million.
Factoring in this guidance, we expect non-GAAP operating margin of approximately 30% for Q1.
Moving on to Capex, we expect to spend approximately $150 million to $155 million, excluding equity compensation for the first quarter.
And with the overall revenue and spend configuration I just outlined we expect Q1 non-GAAP EPS in the range of $1 28.
For $1 31.
This EPS guidance assumes taxes of approximately 37% to $38 million based on an estimated quarterly.
Quarterly non-GAAP tax rate of approximately 15%. It also reflects a fully diluted share count of approximately 165 million shares.
In summary, as you heard Tom highlighted we achieved several significant milestones in 2020, including <unk>.
Delivering 11% top line revenue growth.
<unk> revenue exceeding $3 billion for the first time company history.
Growing security revenue, 25%, surpassing $1 billion exceeding.
Executing on 30% operating margin target and generating non-GAAP EPS of more than $5 per share.
We are very pleased with our performance in 2020, we believe we are well positioned for 2021, we look forward to provide any of a deeper look into our business plans for the future at our upcoming Investor Summit on February 27.
Thank you, Tom and I would be happy to take your questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Sterling Auty from J P. Morgan. Your line is now open.
Yeah. Thanks, Hi, guys. So I guess the big item that crosses my mind is the comment that you're expecting traffic to continue to grow not really fall off but at pre pandemic levels and given that security is now a bigger part of the mix Im kind of curious why the level of deceleration that's factored into the guidance.
For 2021.
Hey, Sterling this is Ed.
So I think Theres a couple of things you need to think about there. So obviously 2020 was unusually high traffic year for us and the point I was trying to make there is that we're not seeing that decline.
But what we're expecting going into this year is what I'd call more and more normal traffic year. So you start to get into some tougher compares as you get into Q2.
And throughout the rest of the year and you still have the normal dynamics in the media business. Most of the traffic is coming from media. Obviously, so there'll be some series of renewals and that sort of thing, which is pretty normal and then the second thing that we called out is that.
We are starting to see a bit more pressure on travel and hospitality and retail for.
First wave was customers coming to us asking us for extended payment terms some credits for some help within a quarter now we're getting into.
<unk> cycle, so we're expecting to see some pressure.
From that area and keep in mind, that's about 20% of our total business about 40% of our web division of our prior web division business. So that's going to have a little bit of an impact on us as well.
That makes a lot of sense and then Tom maybe one for you the structural changes that you're making for the business.
What's the motivation of of doing that now.
Well I think the time has come to bring all of our security teams together.
We created the current structure five years ago, we didn't really have of security business to speak of a few million dollars now it's over $1 billion and we had.
The products there were split among three different groups. The web security group, which is most of it enterprise security, which we've talked a lot about on carrier security, which is very closely tied to enterprise and enterprise and carrier of getting to a real scale now that we can bring them out of incubation and bring all of our security teams to.
Gather.
On a division that just focuses on security.
And I think that will provide even stronger growth going forward.
Also unifying sales makes sense now.
Before we had media sales force that we're selling to customers who are buying media products. We had of web sales force selling two verticals that we're buying web products. So splitting made sense, then but now all of our customers buy security in fact, some of the big media customers on our big.
Buyers of security products, and so I think it makes sense to bring the field force together.
And it's more efficient.
So I think the end result is that we will operate more efficiently.
We will have stronger innovation and continued very strong growth on our security.
Product group and and also on the CDN side of the house as Ed talked about we've got some tail.
<unk> is there also some challenges on the commerce and travel vertical.
But I think very interesting future growth with areas like Iot <unk> and server less computing and bringing those teams together I think again will enable us to be more efficient moving forward.
Great. Thank you.
Thank you. Our next question comes from the line of Keith Why for Morgan Stanley. Your line is now open.
Excellent. Thank you guys for taking the question I wanted to dig into the restructuring a little bit of as well.
So the restructuring charge does that imply that there were some headcount reductions associated with this and given that sort of the operating margins stay relatively stable for for the full year, maybe down a little bit of it.
It seems like you're hiring to offset debt. If you could talk us kind of through kind of where you're taking sort of investment away and where are you, adding investment debt that would be helpful. And then the second part of the question from like Ed go to market or from a customer facing perspective, what are the customers are going to see differently here.
<unk> of the sales people are going to go on with like a bigger toolset for like what changes from that dynamic.
Yeah sure Keith This is Ed I'll take the first part so yeah, we had about a 2% reduction in heads of most of that was due to overlap primarily on the go to market area.
Obviously, we had two leaders in different regions and things like that.
In terms of investments we added over 500 headsets this year of investing in security of R&D as a percentage of Scott.
So I think we've done a really good job of of <unk>.
But on costs and scaling but that being invest back in.
On the business.
So this is really about cost savings initiative was more about better efficiency tucked confinement.
So we're keeping margins in that 30% the investing a bit in the business.
Moving forward as well.
As we've said in the past, we think 30% so a pretty good place to be running the business.
Yeah on in terms of the areas, we're investing in more because we are a net head count went up quite a bit last year and will grow again this year. Despite the current reduction taking place.
We're investing in innovation new products, particularly in the security area.
So in our platform.
Making it more of a programmable platform for our customers with projects such as edge workers.
And making it easier for customers to just deploy their code straight on to Akamai.
On the in terms of what the customer sees theyre going to see the same rep. They saw before by and large when we had split the sales force before it was by vertical.
And so when we bring it together it doesn't mean that there is a accounts breakage per se or that youre going to have a different reps now that said.
It will be of more efficient management structure.
We will have a deeper focus on channels thats, especially important for our growing security products, particularly in the enterprise and carrier security products.
And it'll be easier I think for of Rep to sell everything.
Then maybe it was before now I think reps where for example in media as I mentioned selling security products and they were version of the whole product set.
But I think that becomes even easier now.
Got it that's super helpful. Thank you guys.
Thank you. Our next question comes from the line of James Fish from Piper Sandler. Your line is now open.
Hey, guys. Thanks for the question I want to pick on a couple of.
Questions that were already asked and get into it in greater detail. So maybe first.
The last couple of weeks, we've been hearing a little bit tougher pricing on the media delivery side I mean, what can you say about some of the market of renewal took place on the back half of of 'twenty as well.
Price in the first half of 'twenty, one, especially on the streaming side and some of those new services.
Yeah sure so I would say in terms of pricing.
And the media side I'm not seeing anything unusual this one or two accounts, where we've had some competitors get.
A little bit more aggressive than normal, but it's as far as 21 goes.
From a from a media perspective, not a ton of renewals nothing worth calling out that's outside the norm in the past of I've mentioned when we've had.
Items that I thought it was worth calling out I don't see anything here.
Average contract lengths of between one and two years, so you'll always have.
Mix I would say for the ones that occurred in Q4 in the back half of the year came in where we expected so no real surprises there.
Got it and then obviously a few weeks ago, you announced that updated channel partnerships specifically on on the security side of now today, you're talking about this unified sales organization can you guys give us a little bit more color as to how much of the business, especially on security is actually coming from the channel already and then Additionally, how does the greater investment.
<unk> around channel impact of PL P&L for the consolidation of.
The sales structure.
Yes, so right now about a third business of total goes through the channel.
In terms of breaking it down a little bit further if you think about the same.
For example of us of the 100% of that goes through the channel. We believe the enterprise business more and more of that's going to go through the channel as far as of split goes between security and content delivery to be a bit more on the content delivery such because we've been on the business a lot longer to a bigger percentage of our revenue, but the way to think about it is as we move forward, especially <unk>.
On enterprise channels can be a much bigger part of our go to market strategy.
Thank you. Our next question comes from the line of James Breen from William Blair. Your line is now open.
Thanks for taking the question just for spread I think you said that the EBITDA margin in the first quarter guide were up 44%, but you also talked about.
Some of the payroll expenses and some of the expense of the year and being higher in the first quarter.
It is the case, where you're seeing better margins for sort of offset some of this increase in expenses and then the <unk>.
I think Tom you talked about some of your media customers, taking more security price can you just talk about your total customer base.
And what Youre seeing in terms of customers, taking multiple products from you guys across the base. Thanks.
Yes.
The EBITDA margin was 44% I think just in general we've done a good job of scaling our back office and getting leverage out of most of our G&A functions plus we're doing.
All of the stuff, we do on the server side, making our service more efficient et cetera.
So I just called that out because Q1, we typically have vesting of stock bonus payouts et cetera. So we do tend to see a bit of chicken on our operating expenses, but also you had a very high quarter in Q4 from of commissions perspective, so that sort of normalizes out for the two kind of offset each other but as you kind of think about your modeling Q1 tends to be a bit of opt.
Next slide.
As you go forward and then obviously Q4, if we're having a good year it tends to be of high quarter as well as we get into accelerators from the commission side.
Yeah and in terms of media customers buying security.
Our media customers of the biggest brands out there and they very much need to half of our content stay secure.
And not have sites to face they are worried about accounts being taken over.
Debt media accounts gave me accounts from the account hijackers and Thats, where our bot management and accounts protection capabilities are very important and.
And since these of such large enterprises, they tend to be very large security customers. When we get together on the 25th we will give up really on much deeper breakdown into our various security products, how we think about them.
Our growth rates and what we're projecting over the next several years in terms of growth.
Also give your updated accounts on how many by how many security products.
Great. Thank you.
Thank you. Our next question comes from the line of Tim Horan from Oppenheimer. Your line is now open.
Thanks, guys can you give us a sense of last year.
How much were volumes on the different business above trend.
Estimate I mean, theres a lot of moving parts.
Any color on on that would be helpful.
Yeah sure. So on the on the traffic side I would say last year was probably about double what we normally see from a from a traffic growth perspective.
And then as far as other volumes.
Obviously, the bookings were pretty much in line with what we expected.
And outside of the traffic there is really nothing that is unusual.
Unusual of worth calling out.
And one thing is the attack traffic the bad guys out there their volumes were way up across the board.
Malicious log in attempts attempts to embed malware.
Those kinds of things Ddos attacks of huge increases really across the board last year.
And so that of course.
Makes a big difference for akamai to be able to help our customers because we're unique in being able to stop the largest denial of service attacks and being able to stop the account hijacking attacks.
And did on determined volume or didn't sorry did volume price discounts kick in as a result of volume has been so strong.
Well it depends on the on the contract a lot of our big media companies do have tiered pricing.
Of that would debt would have kicked in.
But again nothing unusual other than the fact that just traffic was much higher than we had expected.
Thank you.
Thank you. Our next question comes from the line of Colby <unk>.
So from Cowen Your line is now open.
Great. Thank you two questions. One is we're getting a lot of questions. Just in terms of what the company is likely to guide you at the upcoming analyst day on obviously not asking for that for the numbers themselves, but what what are some of the financial perspective.
Your intentions in terms of whats youre going to provide.
At the Analyst day, and then secondly, as it relates to your guidance for 2021, New security growth of 18 to 20, 20% I think.
It's below that I think what had been message more of a goal for plus 20% is there anything to kind of flag. There is that just typical conservatism and just simply the law of large numbers of <unk> now reached that $1 billion or do you think that there's an opportunity to kind of accelerate that of reaccelerate that growth again. Thank you.
Yeah, So I'll take the second part first so on.
It is a bit of the law of large numbers I guess, we're getting much bigger we do have a lot of newer products that are ramping fast, but it just takes a while on a recurring revenue business I think if you go back in the past we've talked about last year of getting to 1 billion, we exceeded that of the year before that mid Twenty's, we did high twenties.
So theres always always a possibility.
Overachieve, but I think notes of reasonable a reasonable guide.
The other question was on the intentions of will talk about at the analyst day as far as 2021 guidance. That's only of two weeks, so I'm not going to see anything different that I haven't seen yet so I don't anticipate updating guidance from what we just talked about now, but what we will do is get into a lot more detail you'll hear from all of the leaders talking about what's different.
Groups, and what theyre going to be working on some of the growth on it.
We'll be exposing a lot more about what's going on within the security buckets will be showing you different.
Growth rates in different products. So I think there's a lot of good information that'll come out of it but.
But in terms of updating guidance there won't be on Ian.
Just given that it's two weeks from today.
No.
I think if I go back to your analyst day I think the main event in 2018, there was talk about that 30% operating margin.
No expectation that gave a new bogey if you will for for a few years out from there.
No, we're not going to give a new bogey for new operating margin what I will do is talk about the dynamics of the different business.
How over time, you can see margins expand if we get to be of greater.
Greater percentage of our business comes from.
Great. Thank you.
Thank you. Our next question comes from the line of Brad Zelnick from Credit Suisse. Your line is now open.
Great. Thanks, so much for taking the questions Ed Theres been some so much pent up demand on the gaming side.
And it seems like gaming was a strong contributor again this quarter, how should we think about the impact the gaming vertical might have in 2021 versus maybe other console launches in the past.
Yeah, you're right. It was a very strong quarter for gaming and for US again, just as a reminder.
We worked with the publishers as well as the major platform. So.
Upside coming from from a variety of different.
Customers.
We're seeing more.
Interest in gaming console releases drove a lot of upside in the quarter.
It's always hard to predict.
What James is going to be popular and there was a bit of seasonality in gaming with depending on a quarter that has many releases versus one that may not have as many.
But it's a very fast growing vertical for us and we expect that with these new consoles there should be some new demand throughout the year.
Great. That's very helpful and maybe just a follow up on a on a different topic Ed as we think about the zero overage plans you put in place within the web division and the strong ecommerce holiday season, what might the impact have been in and is this a model, which you might expect to be more pervasive throughout your customer base.
As we move into 'twenty 'twenty one of beyond.
Yeah. Good question. So as you know we introduced this for.
Right about 20 months ago is of the buffer of our customer conference back in June of 19, and we have gotten a lot of traction mostly in retail that's where we're seeing.
Most of the requests for for that type of structure, where right now we've got over half of our customers in the commerce vertical are adopting that structure and it makes a lot of sense. It's actually a good strategy when you're faced with a customer base. That's got some macroeconomic challenges when they're looking at ways of getting saving money youre getting more predictable spend so.
It's been well received by the customer base of I would imagine that would continue to tick up it's not it's not for everyone.
And like I said, we've seen the primary adopter of that is on the retail space.
Awesome. Thanks, so much.
Thank you. Our next question comes from the line of Willpower from Baird. Your line is now open.
Okay, great Yeah. Thanks for taking the question, maybe just to come back to security of I'd love to try to get a little more color on page integrity, I know you've been seeing strong trends there for a while.
Is that on path to be $100 million product and anything else you can share there and I guess the second piece of ties into that just wanted to get an update on what you're seeing in terms of revenue bookings et cetera for some of the some of the enterprise products.
Yeah, I'll take those page integrity manager is off to a great start.
We had a really very good bookings now of course of just got launched middle of last year. So it will take time to grow into a $100 million business, but that's very exciting.
For us and.
In terms of bookings for the enterprise business again, very strong and as you know we've been looking forward to getting our enterprise and carrier security products to the point, where there are 100 million dollar of revenue and we think that we can do that this year or at least get on that run rate.
That combined with the enterprise and carrier security now that we have as of the onboard and we're going to talk a lot more about that at the upcoming analyst day.
Are there any particular areas within the enterprise component, where you're seeing particular strength.
It's across the board enterprise application access really important because of all of the malicious log in attempts enterprise threat protector.
With solar wins becomes more important than ever to know what employee devices in an enterprise devices are talking to are they trying to contact command of control outside the enterprise.
That's something that we can help cash and stop.
As of these done incredibly well much better than we'd expected post.
Post acquisition and.
For example, things like students that need to gain access for remote learning.
To protect them to make sure that their environment is secure.
There's been a lot of development of course with carriers there they sell this product.
And we're behind the scenes, but very strong pickup there to secure the enterprise cellular networks.
And then you think about Iot in the future all of those devices have to be secured and probably all going to be connected with <unk>. So I think of lot of potential upside there and our secure business solution.
Sold by major carriers under their brand for small and medium business medium business.
Again doing very well, so I would say across the board with the enterprise and carrier products, a very strong growth.
We might have a good chance of doubling revenue this year and reaching $100 million.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Jeff Van <unk> from Craig Hallum. Your line is now open.
Great. Thanks, two for me.
Tom just in terms of the restructuring I'm, just curious sort of the thought process or the history of the thought process. There how long that's been percolating and if there were as you think about it kind of one or two key triggers that really made this the time and then secondly, very high level. When you look at the 11% annual growth out of lot of puts and takes as it relates to COVID-19.
The extent you can dial it in and what do you think growth would have been ex COVID-19 impacts, obviously pro and con, but any color there.
Yes, we've been thinking about a rework along these lines for really an extended period, if something you know of.
The senior management team would discuss at least on an annual basis and in terms of the trigger now our security business as reached a $1 billion.
And that's an important milestone.
Also seeing really strong growth for the enterprise and carrier security products as I mentioned and they were both in incubation phase and in different parts of the company we had the enterprise group.
It had the enterprise security products and for the carrier products that was on new media and carrier Division and of course, most of the security revenue was in the web division and increasingly as the smaller product areas grew you start to have overlap for example of anybody that buys of savvy, we want to sell on Kona site defender makes perfect sense same thing for.
Enterprise Security, if you buy EAA you want Kona.
And so I think it really makes sense now that you've reached critical mass to bring them together into one team focused on security and as I mentioned with the sales organization is something we have thought about over the last couple of years.
Certainly more efficient to have a single sales organization and the advantage of having them be split of disappeared really once all of our customers are buying really all of our products, but certainly security.
So.
Again, the time is right to do it.
And you don't like doing something in the middle of the pandemic, but.
At the same time, you can't wait.
At Akamai, we always thought of a sense of urgency we want to get this done because I think it will help our growth going forward now in terms of 11% and were very pleased to see that this year.
We definitely got some tailwind for overall traffic levels and so the media and carrier Division did well. We also deployed a ton of capacity for as Ed mentioned increased growth. This year of next year, just the rate of growth probably less this year next year more of like normal traffic increases as opposed to.
Twice that of the experience this year I think we got hurt in.
Revenue on our web performance products as Ed talked about.
A big part of their revenue comes from Commerce, which has gotten most commerce companies have really been pounded with Covid. There's a few big names that have done very well probably picked up business.
The amount of commerce going online has increased dramatically, but when the parent company is hurting that creates a more difficult environment to negotiate a contract and in many cases as we've talked about.
We've worked with the customer to give them some relief and on.
On pricing as well, we have gone to zero overage. So they can plan better and that hurt I think revenue was this past Q4, I don't get a lot of bursting.
On the other hand, it preserves that business more for us long term and we're in this for the long haul and it means we aren't going to share that business. We ask the many competitors out there we'd like to have just a tiny piece of.
Of our commerce business and so.
It seems a little paradoxical that on the one hand, probably hurt us on revenue on the other as we talked about we serve 40 of the global 50 leaders in commerce of retail and 23 of 25 in the U S M.
Uh huh.
We're working very hard to maintain that business over the long term and grow it, particularly with our security products.
Okay got it thanks Tom.
Thank you. Our next question comes from the line of Brandon Isbell from Keybanc Capital. Your line is now open.
Great. Thank you two questions for Ed Ed could you provide the contribution from acquired businesses included in the revenue outlook for 2021.
And particularly on <unk>.
And then inverse and then secondly, how should we think about IPC revenue contribution in 2021 versus 2020.
Yes, sure so as far as inverse goes there's really no revenue of those are very small company was more of a tech tuck in similar.
Others that we've done in the past so the no real contribution from that directly as we integrated it will help accelerate some of our other products positively probably about $30 million incremental if you look on a year over year, we had about eight this quarter so somewhere in that range. So.
So call it call it a little lesson of point and then as far as the Internet platform customers now kind of get a tip of my count for the team that's been working on those who've done a fantastic job.
Not only maintaining that business, but growing it.
Havent provided specific guidance, but I would expect kind of a similar year, where youre kind of.
Maintain where you're at and maybe a little upside for Q4 was particularly strong so maybe it's a net $50 million range plus or minus.
A few million bucks, depending on what's going on in a particular quarter.
Yes.
Great. Thank you.
Thank you. Our next question comes from the line of Rishi <unk> from D. A Davidson your line is now open.
Hey, guys. Thanks, so much for taking my questions and nice to see continued strong execution.
I wanted to go back to an earlier comment that was made with.
Referenced of solar wind and breach.
Wanted to get a sense of what are you seeing out there in terms of of any changes in demand our pipeline of inbound interest as a result of that breach, especially given your kind of leadership in the year of trust area, that's becoming increasingly important for <unk> and then I've got a follow up.
Yeah, obviously, it illustrates the importance of zero Trust.
It was obviously a devastating attack.
And it highlights the need for products for example, like our enterprise threat protector.
It's one thing to try to stop the malware from getting inside that's hard you look on an example, like this.
But once it inside it has to go out on contact command of control.
And that's something that you can pick up and detect and block in many cases, and then alert the seesaw that they've got a problem and that's what our enterprise threat protector product is meant to do and have done in many many cases.
So I think on the long run it just.
Heightens the need for products that we provide and the need for zero Trust in general.
Stepping up a level.
With third party malware showing up everywhere. That's the same problem you have with page integrity and why our page integrity manager service is so important because today. So many websites linked for third parties or use third party or open source code that has malware.
And what that means is when a client or one of our users goes to their website or users of their app. The client gets infected in their personal information exposed.
And it's just another example of third party malware that's become infected that the enterprise is using.
You know of different different particular use case, one is the website the others internal enterprise apps same problem and same devastating result, and Akamai have solutions to help stop that.
Got it that's helpful. And then I wanted to go back to the re Org look I think it makes a lot of sense.
While you're doing the re org, maybe philosophically want to understand well what steps are you taking or how are you thinking about.
<unk> disruption because of an enterprise software every time, there's a re org there was always a worry of it is going to disrupt the business, especially when you are running on such a hot hand like you are right now and you've done reorders in the past so maybe kind of a thought process on just how do you avoid that from really disrupting your basics would be helpful. Thanks.
Yes, that's of Great question, something we put a lot of time and effort into you know this is of kind of thing we would plan for really for six months.
That's important for now we're doing it from a position of strength I think the last thing you want to do is a free hard when youre in a position of weakness because that's where you can get the disruption of the problems and as you can see you know where.
<unk> as we've ever been and so I think that is a good time to do a re org.
As we mentioned before I don't see a lot of account disruption of lot of account breakage.
You do worry whenever you change the go to market operation that you could have some disruption that way I don't think thats likely here.
Because as we mentioned a lot of the accounts had the same person they had before that theyre dealing with so I don't think that'll be a problem for us and as you mentioned, we do have experience at doing this and we have you know.
Great employees.
And I would say morale in the company is very high.
So I don't anticipate serious disruption to the business here.
Alright wonderful thank you so much.
Thank you. Our next question comes from the line of Robert <unk> from Raymond James Your line is now open.
Great. Thanks, I think investors appreciate the sales synergies between your web performance offerings in your cloud security offerings and the sales force consolidation there makes perfect sense, but would be great to get your thoughts on whether or not it's still makes sense to build a dedicated sales force to help accelerate your enterprise security adoption.
Yes, we do have a sales specialists.
Already and that has been maintained with the.
The new organization, so there'll be no change there in terms of the specialists for not only of the enterprise security products, but the carrier security products, which are very close also of Prolexic has sales specialists there.
So that won't change.
Great. Thanks, and one more if I can just building on Brad's question.
<unk> CDN growth rate decelerated for points from last quarter. So just wondering what we should make it that dynamic we know that overall traffic, especially around gaming was strong up perhaps it was offset by the introduction of Euro bridge fixed fee pricing. So any additional clarification. There would be helpful. As we think about CDN growth rate going forward.
Yes, I think you pretty much nailed.
Remember last Q4, which was an exceptionally strong quarter.
From a traffic growth perspective, so you've got a bit of a tougher compare and like I said earlier it's.
Starting in Q2, when we sort of big ramp and traffic you're going to start to see a little bit tougher compare on the media side and then the dynamic that we've talked about.
Over the last couple of quarters on.
For retail and commerce vertical big of a bit more of a challenging year for the CDN perspective, but we.
We still think we're in great position and we've got some really good tailwind going on we were just talking a minute ago. OTT video is also growing very strongly so theres a lot of puts and takes on there but.
Joe in General I think that's kind of the key drivers just a bit of a tougher compare and then that challenge with retail and travel.
Thanks, a lot.
Okay well this is Tom Barth, we want to think we wanted to thank everyone and closing as Tom and Ed mentioned, we would look forward to you joining us virtually for our Investor Relations Summit on February 25th. Additionally, we will be presenting at several investor conferences and events throughout the rest of the quarter details of these can be found.
On the Investor Relations section of Akamai Dot com.
For joining us and all of US here at Akamai wish continued good L. P you and yours and have a wonderful evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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