Akamai Technologies

Total costs and operating expenses were $1.02B, 92.7% of revenue, 7.2 points more than a year earlier. Income from operations fell 47.0% to $80.3M from $151.5M, and the operating margin fell to 7.3% from 14.5%. It was the third quarter in a row below the $166.0M earned in the third quarter of FY2025.¹

Every major cost line grew faster than revenue. Cost of revenue rose 13.9% and took 44.2% of revenue, up 3.3 points; research and development rose 18.3%, sales and marketing 16.3% and general and administrative 15.4%. The filing names partner costs in its compute program, co-location, depreciation and bandwidth from the platform build, headcount growth, and a new retirement benefit that brings stock-based compensation forward.¹

The filing explains why costs lead revenue: new co-location leases carry financial commitments that are expensed evenly over the lease term, so “in some cases, we are incurring costs in advance of these locations being fully utilized.”¹

The squeeze is older than this quarter. The operating margin was 22.6% in FY2021 on revenue of $3.46B, and 13.5% in FY2025 on revenue of $4.21B.¹

AnalysisAnalysis: margins would recover mainly if compute revenue fills the leased capacity faster than new sites are added. A useful marker would be cost of revenue ceasing to rise as a share of revenue while cloud infrastructure services keep growing.

Interest and marketable securities income rose 124.2% to $31.7M from $14.1M, and equalled 31.7% of pre-tax income of $100.0M, against 9.3% a year earlier. The filing attributes the rise primarily to interest on marketable securities bought during the quarter with the proceeds of new convertible senior notes.¹

The tax provision fell 57.3% to $20.6M, an effective rate of 20.6% against 31.8% a year earlier. The filing ties the drop to lower profit, a larger excess tax benefit from stock-based compensation, a change in the valuation allowance on state credits and lower tax reserves. Together these left net income down 23.4% to $79.4M while income from operations fell 47.0%.¹

Interest income was 3.5x interest expense of $9.1M, since the newest notes carry zero coupon interest. The cost of the money shows in the share count instead: diluted shares were 153.7M against 144.7M basic, compared with 145.2M diluted a year earlier, and diluted earnings per share were $0.52 against $0.71.¹

AnalysisAnalysis: the company intends to spend a portion of the proceeds on accelerated capital expenditure. As that cash moves into servers and sites, the interest it earns would shrink, and reported profit would depend more on the operating line recovering.

Operating cash flow was $326.3M against net income of $79.4M. The cash flow statement adds back non-cash charges, chiefly depreciation and amortization of the network and stock-based compensation, which reduce reported profit but not cash.¹

The gap is not new. In FY2025 free cash flow was $1.01B against net income of $452.0M, 2.2x.¹

Cash still weakened. Free cash flow was $181.3M, 16.5% of revenue, against $313.6M, 30.1% of revenue, a year earlier. Capital spending barely moved, $144.9M against $145.5M; the drop came from operating cash flow, which fell to $326.3M from $459.1M. For the half year the filing cites the timing of customer collections, higher payroll and higher lease payments for co-location facilities.¹

AnalysisAnalysis: the added-back charges are still costs. Depreciation is the delayed cost of servers already bought, and stock pay is borne by shareholders through dilution, so cash flow above profit partly reflects how costs are recorded rather than costs avoided.