Akamai Technologies (AKAM, Financial) is advancing in its shift towards cybersecurity and cloud computing, yet its traditional CDN business faces significant challenges. This ongoing slump in the Delivery segment, driven by reduced digital spending and internet traffic, is the main reason for AKAM's lowered EPS and revenue projections for Q1 and FY25.

• Despite surpassing Q4 EPS and revenue estimates, AKAM's earlier guidance reset expectations lower. The Compute segment, with a 24% year-over-year revenue increase to $167 million, was crucial to Q4's success. Demand for cloud infrastructure, particularly from large enterprises, was strong, with around 300 customers spending at least $100K in ARR for these services by year-end.
• Looking ahead, AKAM aims to boost its cloud infrastructure services ARR by 40-45% in FY25, driven mainly by enterprise clients. This segment offers a competitively priced edge computing network.
• In cybersecurity, AKAM is enhancing its offerings to compete with firms like CrowdStrike (CRWD, Financial) and Palo Alto Networks (PANW, Financial). Q4 saw a 14% rise in Security revenue to $535 million, supported by a broader product range that attracts more customers. AKAM's portfolio now includes products for infrastructure, APIs, and application protection.
• Security's growth is expected to continue, led by the Guardicore platform, which ended FY24 with a $190 million ARR, up 31% year-over-year. AKAM's new 3-5 year goal includes over 10% inorganic revenue growth, driven by Compute and Security.
• However, the Delivery business remains a challenge. Revenue fell by 18% in Q4 to $318 million, following a 16% decline last quarter. AKAM faces a significant revenue drop from a major customer dealing with "political challenges" in the U.S. and adopting a DIY approach, impacting AKAM's overall revenue growth by 1-2% annually for the next few years.

Overall, while AKAM is making strides in Security and Compute, now comprising 69% of total revenue, the persistent issues in Delivery hinder its financial performance. Until this improves, sustained upward momentum for the stock may be elusive.