阿卡邁科技 (AKAM) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Akamai Technologies, Inc.

Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions)

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's Fourth Quarter and Fiscal Year 2020 Earnings Conference Call.

Speaking today will be Tom Leighton, Akamai's Chief Executive Officer; and Ed McGowan, Akamai's Chief Financial Officer.

Before we get started, please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance.

These 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 developments.

Additional information concerning these factors is contained in Akamai's 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 9, 2021.

Akamai disclaims any obligation to update these statements to reflect future events or circumstances.

As a reminder, we will be referring to some non-GAAP financial metrics during today's call.

A detailed reconciliation of GAAP and non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com.

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 the fourth quarter and the full year in spite of extraordinary challenges that we all faced in 2020.

Q4 revenue was $846 million, up 10% over Q4 in 2019 and up 8% in constant currency.

This strong result was driven by the continued rapid growth of our security business and continued high-traffic levels on our intelligent edge platform.

Non-GAAP operating margin in Q4 was 30%, up 1 point over Q4 in 2019.

And Q4 non-GAAP EPS was $1.33 per diluted share, up 8% year-over-year and up 6% in constant currency.

For the full year, we surpassed our expectations on the top of the lines, setting new records for our business and positioning us well in the future.

Full year 2020 revenue was $3.2 billion, up 11% over the prior year in constant currency and topping the $3 billion mark for the first time in our history.

We're especially pleased to report that we expanded non-GAAP operating margin to 31% in 2020, over achieving our target of 30%.

This is up dramatically from 24% in 2017.

I think it's worth noting that we achieved this expansion over the past 3 years, while also investing for future growth.

Non-GAAP EPS for 2020 was $5.22 per share, up 16% over 2019, and exceeding $5 per share for the first time.

We also generated $1.2 billion in cash from operations last year, up 15% over 2019, and representing 38% of revenue.

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 in constant currency.

For the full year, security revenue exceeded $1 billion and grew 25% over 2019.

This puts Akamai in rare company as new firms generate more than $1 billion in annual revenue from cybersecurity solutions and fewer still grew at 25% last year.

Security represented 1/3 of our revenue last year, which is up 29 -- up from 29% in 2019 and 24% in 2018.

Bookings were especially strong for our Prolexic service in Q4 as we helped dozens of major enterprises defend against a huge wave of ransom DDoS attacks that began in Q3.

DDoS production has been a mainstay of our portfolio for years and has never been more relevant for customers.

We also saw strong bookings for our Bot Manager solution.

OP manager helps defend against credential abuse attacks, which are about 4x greater in 2020 than 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 are off to an excellent start, as enterprises increasingly need to deal with malware, third-party software and applications.

And the addition of Secure Web Gateway to our Enterprise Threat Protector service, better positions us to compete in the fast-growing enterprise security market.

We were also pleased to close our acquisition of Asavie in Q4, which helps advance our security capabilities for cellular devices and networks.

New Asavie customers signed after the integration include a national health agency, which adopted Asavie to secure its COVID vaccination application, and Digital Promise, a nonprofit organization that works to close the digital learning gap for students with 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 and downloads of (inaudible) gaming software.

On November 10, traffic on the Akamai platform reached an all-time high of 181 terabits per second, 50% greater than the peak in 2019.

Nobody in the marketplace comes anywhere close to our capacity to serve customers at the edge on a global scale.

In fact, we already exceeded last year's traffic feat 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 and Singles Day.

The unmatched reliability, scale, global reach and security of our intelligent edge platform is a major reason why 40 of the world's top 50 retailers and 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 lines.

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 to the future, we see substantial opportunity for enterprises to increase their use of the Akamai intelligent edge platform.

We believe the edge is where new applications and new business models will come to life, where intelligence will be built into how data is collected and analyzed, where the promise of 5G and IoT will be realized, and where security will provide the online world's first and most important line of defense.

To better take advantage of these opportunities and to better serve our customers.

We announced today that we'll be realigning our organization around 2 major groups of products, products that enable business online and products that protect business online.

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 Karon as COO and 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 2/3 of our total revenue today with strong margins and cash generation to fuel our innovation firepower.

The group's mission is twofold: first, to ensure that our edge platform remains the unparalleled market leader for scale, performance, reliability, ease of use, agility and cost; and second, to generate additional growth through the innovation of new products and services for emerging customer needs in areas such as IoT, 5G and serverless computing.

Products that protect business online will come together in a new security technology group to be led by Rick McConnell, as President and General Manager.

This new group will be responsible for all our security solutions, including our market-leading web security products, such as Kona Site Defender, Bot Manager and Prolexic, our enterprise security products, such as Enterprise Application Access and Enterprise Threat Protector, and our carrier security products, such as our D&S based secure business offering, and our new secure mobile service from Asavie.

In 2021, we'll go to market with a unified mobile sales organization to better serve our customers, deepen our channel relationships and provide our customers and partners with easier access to the full breadth of our portfolio.

P.J. Joseph, who previously led our sales for media and carrier, will lead global sales, reporting to me.

As part of the new alignment, Bobby Blumont will become our Chief Technology Officer, to guide innovation and be an evangelist for our technology vision and leadership in the marketplace.

Kim Salem-Jackson, who has successfully led Akamai field marketing and Global Communications for the last 3 years, will become our new Chief Marketing Officer as part of a plan of transition.

Kim will succeed Monique Bonner, who has done a fabulous job of transforming our marketing organization over the last 4.5 years.

Mo will stay on with Akamai in a senior advisory role, which will allow her to devote more time to her family while 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 25, where we will outline our strategy and plans to drive Akamai's next phase of growth.

Akamai made amazing contributions to the world in 2020, but we believe the best is yet to come.

Looking ahead, we have the potential to greatly expand our business in enterprise and carrier security as we strive to further grow our leadership position in web security.

We plan to grow the capacity of our unparalleled Intelligent Edge Platform by another order of magnitude as we continue to improve our market-leading performance reliability.

We seek to bring innovative new services to market to support emerging IoT and serverless computing applications.

We want to help enable the world to take advantage of the incredible potential of 5G.

And we'll continue our efforts to build value for our shareholders with our world class talent, technology leadership, strong profitability and cash generation to fuel our future growth.

Now I'll turn the call over to Ed to provide further details on our 2020 results and 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.

Q4 revenue was $846 million, up 10% year-over-year or 8% in constant currency, driven by another quarter of very strong security growth, higher-than-expected gaming traffic and the weaker U.S. dollar.

Revenue from our web division was $438 million, up 5% year-over-year or 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 and 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 or 14% 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, up 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 Asavie acquisition.

Asavie contributed approximately $8 million in Q4, driven by a combination of much better-than-expected strength in the educational vertical and a 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, up 16% year-over-year or 13% in constant currency.

Sales in our international markets represented 45% of total revenue in Q4, up 3 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 were $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.

Adjusted EBITDA was $364 million, up $45 million or 14% from the same period in 2019.

Our adjusted EBITDA margin was 43%, up 2 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 1 point from last year and in line with our guidance.

Capital expenditures in Q4, excluding equity compensation and capitalized interest expense, were $195 million.

GAAP net income for the fourth quarter was $113 million or $0.68 of earnings per diluted share.

It is worth noting that our Q4 GAAP results include 2 onetime items: a $27 million restructuring charge, primarily related to the company realignment that Tom mentioned; and a $20 million additional endowment to the Akamai Foundation.

Non-GAAP net income was $220 million or $1.33 of earnings per diluted share, up 8% year-over-year, up 6% in constant currency and $0.01 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 a Q4 effective tax rate of approximately 15%.

Now I will discuss some balance sheet items.

As of December 31, our cash, cash equivalents and marketable securities totaled approximately $2.5 billion.

After accounting for the $2.3 billion of combined principal amounts of our 2 convertible notes, net cash was approximately $197 million as of December 31.

Now I'll review our use of capital.

During the fourth quarter, we spent $73 million to repurchase shares, buying back approximately 700,000 shares.

We ended Q4 with approximately $572 million remaining on our previously announced share repurchase authorization.

Our long-term plan remains to leverage our share buyback program to offset dilution resulting from equity compensation over time.

I'm very proud of all of our employees who delivered these outstanding Q4 and 2020 results, especially during a very challenging year for us all.

Now before I provide guidance, I thought it would 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.

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 Internet in areas like OTT video, gaming and e-commerce.

And we believe this usage pattern will likely persist going forward.

However, we expect to see traffic continue to grow in 2021, but at a rate more in line with pre-2020 historical levels.

In addition to revenue, there are some other items we expect in 2021 that are worth calling out: First, in 2020, our travel and related expenses were 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 $0.05 on our 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 a revenue step down sequentially from Q4, our strong seasonal quarter.

Also in Q1, remember that our employee payroll taxes and 401(k) 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, as they align to our current CDN and other and cloud security revenue reporting that 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 in Q1.

Looking ahead to full year, we expect revenue of $3.37 billion to $3.42 billion, which is 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% and a fully diluted share count of approximately 165 million shares.

And finally, full year CapEx is expected to be approximately 16% of revenue.

This is down 7 points year-over-year as we expect to leverage the significant network capacity investment we made in 2019 and 2020.

Moving on to Q1 guidance.

We are projecting Q1 revenue in the 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 and a positive $16 million impact year-over-year.

At 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%.

And now moving on to depreciation.

We expect 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 in 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 to $1.31.

This EPS guidance assumes taxes of approximately $37 million to $38 million, based on an estimated 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 highlight, we achieved several significant milestones in 2020, including: delivering 11% top line revenue growth with total revenue exceeding $3 billion for the first time in company history; growing security revenue 25% and surpassing $1 billion; exceeding our 30% operating margin target; and generating non-GAAP EPS of more than $5 a share.

We are very pleased with our performance in 2020, and we believe we're well positioned for 2021.

We look forward to providing you a deeper look into our business and our plans for the future at our upcoming Investor Summit on February 25.

Thank you.

Tom and I would be happy to take your questions.

Operator?

(Operator Instructions) Our first question comes from the line of Sterling Auty from JPMorgan.

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, I'm kind of curious why the level of deceleration that's factored into the guidance for 2021.

Hey Sterling, this is Ed.

So I think there's a couple of things you need to think about there.

So obviously, 2020 was an 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 a 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 a 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 in travel and hospitality and retail.

The first wave was customers coming to us, asking us for extended payment terms, some credits or some help within a quarter.

Now we're getting into a renewal 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, 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 1 for you.

The structural changes that you're making to the business, what's the motivation of doing that now?

Well, I think the time has come to bring all of our security teams together.

When we created the current structure 5 years ago, we didn't really have a security business to speak of, a few million dollars.

Now it's over $1 billion, and we had, the products there were split among 3 different groups: The Web Security group, which is most of it; Enterprise Security, which we've talked a lot about; and Carrier Security, which is very closely tied to Enterprise.

And Enterprise and Carrier are getting to a real scale now that we can bring them out of incubation and bring all of our security teams together in 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 a media sales force that were selling to customers who are buying media products.

We had a web sales force selling to verticals that were buying web products.

So splitting made sense then.

But now all of our customers buy security.

In fact, some of the big media customers are our biggest 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'll have stronger innovations and continued very strong growth in our security product group.

And also on the CDN side of the house, as Ed talked about, we've got some tailwinds there, also some challenges in the commerce and travel vertical.

But I think very interesting future growth with areas like IoT, 5G and serverless computing.

And bringing those teams together, I think, again, will enable us to be more efficient moving forward.

Our next question comes from the line of Keith Weiss for Morgan Stanley.

Excellent.

I wanted to dig into the restructuring a little bit 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 the full year, maybe down a little bit, it seems like you're hiring to offset debt.

So if you could talk us kind of through kind of where are you taking sort of investment away and where you're adding investment, that would be helpful.

And then the second part of the question, from like a go-to-market or from a customer-facing perspective, what are the customers going to see differently here?

Are the salespeople going to go in with like a bigger tool set?

Or like what changes from that dynamic?

Yes.

So Keith, this is Ed.

I'll take the first part.

So yes, we had about a 2% reduction in heads, and most of that was due to overlap, primarily in the go-to-market area.

Obviously, we had 2 leaders in different regions and things like that.

In terms of investments, we added over 500 heads this year, investing in security R&D as a percentage.

So I think we've done a really good job of cutting costs and scaling, but being able to invest back in the business.

So this is really was about the cost savings initiative?

It was more about better efficiency confinement.

So we're keeping margins in that 30% to be investing a bit in the business moving forward as well.

And as we've said in the past, we think 30% is a pretty good place to be running the business.

Yes.

And in terms of the areas we're investing more, because we are.

Net headcount 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.

Also 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.

In terms of what the customer sees, they're 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 an account breakage per se or that you're going to have a different rep.

Now that said, it will be a more efficient management structure.

We'll have a deeper focus on channels.

It's especially important for our growing security products, particularly in the enterprise and carrier security products.

And it will be easier, I think, for a rep to sell everything than maybe it was before.

Now I think reps were, for example, in media, as I mentioned, selling security products, and they were versed in the whole product set, but I think that becomes even easier now.

Our next question comes from the line of James Fish from Piper Sandler.

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, you've been hearing a little bit tougher pricing on the media delivery side.

I mean, what can you say about some of the larger renewals that took place in the back half of '20, as well as that take place in the first half of '21, especially on the streaming side and some of those new streaming services?

Yes, sure.

So I would say in terms of pricing, there's -- in the media side, I'm not seeing anything unusual, these 1 or 2 accounts where we've had some competitors get a little bit more aggressive than normal.

But as far as '21 goes from a media's perspective, not a ton of renewal, nothing worth calling out that's outside the norm.

In the past, I've mentioned when we've had items that I thought was worth calling out.

I don't see anything here which would qualify as average contract lengths of between 1 and 2 years.

So you'll always have mix, I would say.

For the ones that occurred in Q4 and 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 partnership, specifically on the security side.

And now, today, you're talking about this unified sales organization.

Can you guys give us a little bit more color as to how much the business, especially on security is actually coming from the channel already?

And then additionally, how does the greater investment around channel impact to P&L versus the consolidation of the sales structure?

Yes.

So right now, about 1/3 of the business in total goes through the channel.

In terms of breaking it down a little bit further, if you think about the -- for example, Asavie, 100% of that goes through the channel.

We believe the enterprise business more and more, that's going to go through the channel.

As far as the split goes, between security and content delivery, there'll be a bit more on the content delivery side because we've been in the business a lot longer.

It's a bigger percentage of our revenue.

But the way to think about it is, as we move forward, especially in enterprise channels will be a much bigger part of our go-to-market strategy.

Our next question comes from the line of James Breen from William Blair.

Just first, Fred, I think you said the EBITDA margins in the first quarter guide were around 44%.

But you also talked about some of the payroll expenses and some of the expenses at year-end being higher in the first quarter.

If that's the case, where are you seeing better margins to sort of offset some of those increase in expenses?

And then secondly, I think, Tom, you talked about some of your media customers taking more security products.

Can you just talk about your total customer base?

And what you're seeing in terms of customers taking multiple products from you guys across the base?

Yes.

So 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 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 in stock, bonus payouts, et cetera.

So we do tend to see a bit of uptick in our operating expenses.

But also, it's -- you had a very high quarter in Q4 from a commissions perspective.

So that sort of normalizes out.

So the 2 kind of offset each other.

But as you kind of think about your modeling, Q1 tends to be a bit on the OpEx side as you go forward.

And then obviously, Q4, if we're having a good year, it tends to be a high quarter as well as we get into accelerators from the commission side.

Yes.

And in terms of media customers buying security, our media customers are the biggest brands out there.

And they very much need their content stay secure, and not have sites to face.

They're worried about accounts being taken over, that media accounts, gaming accounts from the account hijackers, and that's where our Bot management and account protection capabilities are very important.

And since these are such large enterprises, they tend to be very large security customers.

When we get together on the 25th, we'll give a, really a much deeper breakdown into our various security products, how we think about them, their growth rates and what we're projecting over the next several years in terms of growth, we'll also give you updated counts on how many buys, how many security products.

Our next question comes from the line of Tim Horan from Oppenheimer.

Can you give us a sense of last year?

How much were volumes on the different businesses above trend?

Do you estimate?

I mean, there's a lot of moving parts.

Any color on that would be helpful.

Yes, sure.

So on the traffic side, I would say last year was probably above double what we normally see from a traffic growth perspective.

And then as far as other volumes, obviously, our bookings were pretty much in line with what we expected.

And outside of the traffic, there was really nothing that was unusual or worth calling out.

And one thing is that 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 kind of things, DDoS attacks, huge increases, really, across the board last year.

And so that -- and 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 highjack attacks.

And did on term in volume or did -- sorry, did volume price discounts kick in as a result of volumes being so strong?

Well, it depends on the contract.

A lot of our big media companies do have tier pricing.

So that would have kicked in.

But again, nothing unusual other than the fact that just traffic was just much higher than we had expected.

Our next question comes from the line of Colby Synesael from Cowen.

Two questions.

One is, we're getting a lot of questions just in terms of what the company is likely to guide to at the upcoming Analyst Day.

Obviously, not asking for the numbers themselves.

But what are, from a financial perspective, your intentions in terms of what you're going to provide at the Analyst Day?

And then secondly, as it relates to your guidance for 2021, your security growth of 18% to 20%, and 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?

Is this simply the law of large numbers as you now reach that $1 billion?

Or do you think that there's an opportunity to kind of accelerate that or reaccelerate that growth again?

Yes, I'll take the second part first.

So it is a bit of the 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 in a recurring revenue business.

I think if you go back in the past, we've talked about last year, getting to $1 billion.

We exceeded that.

The year before that, mid-20s, we did high 20s.

So there's always a possibility to overachieve, but I think that's a reasonable guide.

The other question was on the intentions of what to talk about at the Analyst Day.

As far as 2021 guidance, that's only in 2 weeks, so I'm not going to see any difference 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 the leaders talking about what's the different groups and what they're going to be working on, some of the growth dynamics.

We'll be exposing a lot more about what's going on within the security buckets.

We'll be showing you different growth rates and different products.

So I think there's a lot of good information that will come out of that.

But in terms of updating guidance, there won't be any to do that, just given that it's 2 weeks from today.

So there's no -- I think if I go back to your Analyst Day, I think it might have been in 2018.

There was talk about that 30% operating margin.

No expectation to give a new bogey, if you will, for a few years out from there.

No.

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 and how over time, you can see margins expand if we get to be -- a greater percentage of our business comes from security.

Our next question comes from the line of Brad Zelnick from Crédit Suisse.

Great.

Ed, there's been 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?

Yes.

You're right.

It was a very strong quarter for gaming.

And for us, again, just as a reminder, we work with the publishers as well as the major platforms.

So the upside coming from a variety of different customers.

We're seeing more interest in gaming, the console releases drove a lot of upside in the quarter.

It's always hard to predict what games are going to be popular, and there is a bit of seasonality in gaming, 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 continued demand throughout the year.

Great.

That's very helpful.

And maybe just a follow-up on a different topic, Ed, as we think about the 0 overage plans you put in place within the web division and the strong e-commerce holiday season.

What might the impact have been?

And is this a model which you might expect to be more pervasive throughout your customer base as we move into 2021 and beyond?

Yes.

Good question.

So as you know, we introduced this probably about 20 months ago, it was at the summer of our customer conference back in -- it was 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 that type of structure.

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 or getting more predictable spend.

So it's been well received by the customer base.

I would imagine that would continue to tick up.

It's not for everyone.

And like I said, we've seen the primary adopter of that is in the retail space.

Our next question comes from the line of Will Power from Baird.

Okay.

Great.

Maybe just to come back to security.

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 a $100 million product?

And anything else you can share there?

And I guess the second piece that ties into that, just like to get an update on what you're seeing in terms of revenue, bookings, et cetera, for some of the enterprise products.

Yes.

I'll take those.

Page Integrity Manager is off to a great start.

We had really very good bookings.

Now of course, it just got launched in middle of last year.

So it will take time to grow into $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 they're $100 million of revenue.

And we think that we can do that this year, at least get on that run rate, so that combined with the enterprise and carrier security, now that we have Asavie on board.

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 the malicious log in attempts.

Enterprise Threat Protector, with SolarWinds, becomes more important than ever to know what employee devices and enterprise devices are talking to, are they trying to contact, command and control outside the enterprise.

That's something that we can help catch and stop.

Asavie has done incredibly well, much better than we'd expected 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 those devices have to be secured and probably all going to be connected with 5G, so I think a lot of potential upside there.

And our secure business solution that's resold by major carriers under their brand for small and media business -- medium business, again, doing very well.

So I would say, across the board, with the enterprise and carrier products, very strong growth, and we might have a good chance of doubling revenue this year and reaching $100 million.

Our next question comes from the line of Jeff Van Rhee from Craig-Hallum.

Two for me.

Tom, just in terms of restructuring, I'm just curious sort of the thought process or the history of the thought process there.

How long has it been percolating?

And if there were, as you think about it, kind of 1 or 2 key triggers that really made this the time?

And then secondly, very high level, when you look at the 11% annual growth, a lot of puts and takes as it relates to COVID.

At least, the extent you can dial it in, what do you think growth would have been ex-COVID 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.

It's something the senior management team would discuss, at least on an annual basis.

And in terms of the trigger now, our security business has reached $1 billion, and that's an important milestone.

We're also seeing really strong growth for the enterprise and carrier security products, as I mentioned, and they were both in the incubation phase and in different parts of the company.

We had the enterprise group, had the enterprise security products and for the carrier products, that was on the Media and Carrier division.

And of course, most of security revenue was in the web division.

And increasingly, as the smaller product areas grew, you start to have overlap.

For example, anybody that buys Asavie, we want to sell him 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 they've reached critical mass to bring them together into 1 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 had disappeared really once all our customers are buying really all 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 have 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%, we're very pleased to see that this year, we definitely got some tailwinds 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 and next year.

Just the rate of growth, probably less this year, next year, more like normal traffic increases as opposed to twice that, that we experienced this year.

I think we got hurt in revenue and 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 pricing as well.

We've gone to 0 overage, so they can plan better.

And that hurt, I think revenue this past Q4, don't get a lot of firsting.

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 with the many competitors out there would like to have just a tiny piece of our commerce business.

And so it seems a little paradoxical that on the one hand, it probably hurt us on revenue, on the other, as we talked about, we serve 40 of the global 50 leaders in commerce and retail and 23 of 25 in the U.S. And we're working very hard to maintain that business over the long-term and grow it, particularly with our security products.

Our next question comes from the line of Brandon Nispel from KeyBanc Capital.

Great.

Two questions for Ed.

Ed, could you provide the contribution from acquired businesses included in the revenue outlook for 2021?

I think, in particular around Asavie 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.

That was a very small company.

It was more of a tech tuck-in, similar to others that we've done in the past.

So there's no real contribution from that directly.

As we integrate, it will help accelerate some of our other products.

Asavie, probably about $30 million incremental.

If you look kind of year-over-year, we had about $8 million this quarter, so somewhere in that range.

So call it a little less than a point.

And then as far as the Internet platform customers, I'm going to tip my cap to the team that's been working on those.

They've done a fantastic job not only maintaining that business, but growing it.

I haven't provided specific guidance, but I'd expect kind of a similar year where you're kind of, maintain where you're at and maybe a little upside.

Q4 was particularly strong, so maybe it's in that $50 million range, plus or minus a few million bucks, depending on what's going on in the particular quarter.

Our next question comes from the line of Rishi Jaluria from D.A. Davidson.

And nice to see continued strong execution.

I wanted to go back to an earlier comment that was made with reference to the SolarWinds breach.

I wanted to get a sense, what are you seeing out there in terms of any changes in demand or pipeline or inbound interest as a result of that breach, especially given your kind of leadership in the Zero Trust area that's becoming increasingly important for CISOs?

And then I've got a follow-up.

Yes.

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 at an example like this.

But once it's inside, it has to go out and contact command and control.

And that's something that you can pick up and detect and block in many cases, and then alert the CISO that they got a problem.

And that's what our Enterprise Threat Protector product is meant to do and has done in many, many cases.

So I think in 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 link to 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 uses their app, the client gets infected and their personal information's exposed.

And it's just another example of a third-party malware that's become infected that the enterprise is using.

A different particular use case.

One's the website, the other's internal enterprise apps, same problem and same devastating result, and Akamai has solutions to help stop that.

Got it.

That's helpful.

And then I wanted to go back to the reorg.

Look, I think it makes a lot of sense why you're doing the reorg.

Maybe philosophically want to understand, what steps are you taking?

Or how are you thinking about avoiding disruption?

Because in enterprise software, every time there's a reorg, there's always a worry of it's going to disrupt the business, especially when you're running on such a hot hand like you are right now, and you've done reorgs in the past.

So maybe kind of a thought process on just how to avoid that from really disrupting your business would be helpful.

Yes.

That's a great question.

It's something we put a lot of time and effort into.

This is a kind of thing we would plan for, really, for 6 months.

It's important to know we're doing it from a position of strength.

I think the last thing you want to do is rewire when you're in a position of weakness, because that's where you can get the disruption and the problems.

And as you can see, we're as strong as we've ever been.

And so I think that is a good time to do a reorg.

As we mentioned before, I don't see a lot of account disruption, a 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 that's likely here because, as we mentioned, a lot of the accounts have the same person they had before that they're dealing with.

So I don't think that will be a problem for us.

And as you mentioned, we do have experience at doing this.

And we have great employees.

And I would say, morale in the company is very high.

And so I don't anticipate serious disruption to the business here.

Our next question comes from the line of Robert Majek from Raymond James.

Great.

I think investors appreciate the sales synergies between your web performance offerings and your cloud security offerings.

And the sales force consolidation there makes perfect sense, but it would be great to get your thoughts on whether or not it still makes sense to build a dedicated sales force to help accelerate your enterprise security adoption.

Yes.

We do have a sales specialist already, and that is being maintained with the new organization.

So there'll be no change there in terms of the specialist for not only the enterprise security products, but the carrier security products, which are very close.

Also Prolexic has sales specialists there.

So that won't change.

Great.

And 1 more, if I can.

Just building on Brad's questions.

The year-over-year CDN growth rate decelerated 4 points from last quarter.

So just wondering what we should make of that dynamic?

We know that overall traffic, especially around gaming was strong, but perhaps it was offset by the introduction of 0 overage 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 it.

Just remember, last Q4 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, starting in Q2 when we saw the big ramp in traffic, you're going to start to see a little bit tougher compare on the media side and then the dynamics that we've talked about, really over the last couple of quarters on the retail and commerce vertical.

Make it a bit more of a challenging year from a CDN perspective, but we still think we're in a great position, and we've got some really good tailwinds going on.

We're just talking about it a minute ago, teaching video's also growing very strongly.

So there's a lot of puts and takes in there.

But in general, I think that's kind of the key driver is just a bit of a tougher compare and then that challenge with retail and travel.

Okay.

Well, this is Tom Barth.

We want to thank everyone in closing.

As Tom and Ed mentioned, we would look forward to you joining us virtually for our Investor Relations Summit on February 25.

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.com.

Thank you for joining us, and all of us here at Akamai wish continued good health to 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.