By Katherine Hamilton

Akamai Technologies revealed to investors that TikTok is a much larger customer than many expected, fueling pessimism about 2025 earnings as the social media platform plans to transition operations internally and faces a ban in the U.S.

Investors dropped the stock, which was the worst performer on the S&P 500 Friday morning, after Akamai said exposure to TikTok and plans to exit some smaller businesses are expected to dampen revenue growth over the next couple years.

The Cambridge, Mass., cloud computing company said Thursday that TikTok is its largest customer, making up about 6% of total revenue. That news was "the surprise of the night" for investors, Bank of America analysts said in a note, and worried investors since the social media app is transitioning away from its partnership with Akamai.

Akamai has provided a content delivery network to TikTok, but the short-video platform is starting to source that service internally, said D.A. Davidson analyst Rudy Kessinger. That is likely to drag down revenue growth by 1 percentage point both this year and next, and could drag it down by 2 points if the site is banned, Kessinger said.

Revenue for the year is expected to expand around 2.7%, missing Wall Street's estimates of a 6.8% increase, according to FactSet.

Akamai did say Thursday it closed a deal to offer computing services to TikTok, which is expected to bring in $100 million over a multiyear period. In 2025, it is expected to earn $5 million to $10 million, but analysts are concerned that Akamai may have given TikTok concessions on its delivery services to secure the deal, potentially offsetting some of that revenue, Kessinger said.

Bank of America analysts said Akamai has opportunities for long-term growth, but they don't expect it to return to double-digit growth until 2029 at the earliest.

Overall, Akamai is transitioning its focus to cloud infrastructure services and cybersecurity. Security and compute revenue grew 15% in the fourth quarter, but growth this year is expected to be masked by the company's plan to exit some of its more niche businesses such as video manager, image and next storage. That exit is likely to hit revenue growth by 10%, Oppenheimer analysts said.

Write to Katherine Hamilton at katherine.hamilton@wsj.com

(END) Dow Jones Newswires

February 21, 2025 11:45 ET (16:45 GMT)

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