Taking with us day two of Citi's Global TMT Conference. I'm Fatima Boolani. I am the resident software infrastructure software analyst here. I jointly run the software research team here, and I am absolutely thrilled to be sharing the stage and hosting Ed McGowan, CFO of Akamai. Thank you for being here. Thank you for having us. Very happy to be here. Been a great conference so far. Terrific. I hope we fed you, and the day was productive. It was very productive, yes. Excellent. I like to hear it. So, look, I think we have a lot of ground to cover, so I'm gonna jump right in. Ed, I want to talk to you about kind of the state of business at large. You know, certainly I want to drill into the three principal areas that you're kind of, you know, driving growth and driving efficiencies and things like that. But just at the highest level, just kind of wanted to get, kind of a state of the union about the business from you- Sure. and then we can take it from there. Sure, yeah. I mean, obviously, we have three businesses: our legacy CDN business, our security business, and our compute business, and they're all obviously at different stages of growth and sort of evolution, if you will. The delivery business is obviously very challenged at the moment. Internet traffic in general, growth has been very, very weak this year. I've been in the business for 25 years, and I've never seen a year where internet traffic hasn't been growing at least 30%, so this is quite anomalous to see such a lack of growth on the internet, so that's obviously challenging the business. 51% of our business now comes from security. Security's been an amazing business for us. It's now about a $2 billion run rate business. Been growing, you know, in the teens. Been a great growing business for us. A lot of exciting stuff going on in security, a lot of investment going into security, and so that business continues to do well. Obviously, there's, you know, that threat landscape continues to evolve, change, get more difficult. With AI coming along, it's going to become even more challenging for our customers, so there's a lot of great opportunity in security. I'm thrilled that we made the decision to pivot to security, you know, ten or 11 years ago, and it's been just a home run for us. And then there's the compute business, which we have always been in the edge computing- Mm-hmm ... business. With the acquisition of Linode, we're getting into more traditional compute and starting to compete with some of the hyperscaler options that are out there now. That business is doing phenomenally well. We have a line item we call our enterprise compute, which is where we've poured a lot of investment dollars into. We talked about hitting a $50 million run rate. Expect that to be $100 million or more as we exit the year, so that's going phenomenally well. It's just the early days of our compute growth. We think obviously a huge market, and we think that can be a significant leg up in terms of growth of the overall company in the future. I appreciate that, Ed. Just let's start with the delivery business, and we'll peel back the onion on this. So you talked about, hey, traffic growth has been in a very anemic state. You know, based on what you see, and you see a lot of the internet activity- We do ... right? When do you think some of these trends that you're talking about that are weighing- Sure ... when will the traffic trends specifically, do you think, will bottom out? Yeah, you know, it's really hard to say. I mean, if you look at the kind of traffic growth on the internet or traffic on the internet, the biggest sources of traffic, obviously, streaming video. Mm-hmm ... software downloads, gaming downloads tend to be, you know, the largest source of traffic, and each one of those has some interesting dynamics. Gaming, you know, several years ago, was a massive source of growth for us, where you had the, you know, the introduction of the multiplayer gaming with Fortnite and some other me-toos that came along, along the way. So that was a nice big growth driver. It coincided with the pandemic, which obviously, people were spending a lot more time just in general on the internet. Mm-hmm. We haven't seen in the last two years for gaming that has been particularly strong. It's been fairly weak. I don't know what the main driver of that is. It can be sometimes some of the titles that come out aren't as popular as titles in the past. Obviously, the size and frequency of the updates has a big impact on the business as well, and then with streaming, obviously streaming several years ago, there was six big streaming platforms that were introduced, and that drove a tremendous amount of traffic growth and growth on the internet in general. We had a writers' strike not too long ago, so I think that might have something to do with the fact that there's not as much new content. I think that's gonna start to evolve and change over time. and also just the, you know, subscriber growth and technology, you know, over the years, whether it's 5G or just broadband to the home, that's kind of largely played out. So you don't see, you know, new countries coming online like you did with India several years ago- Mm-hmm ... when Reliance came in with the big 5G network and affordable phones and data plans. We saw massive growth in India for several years, and that sort of has leveled off. So I'm not quite sure what it is that's gonna be the catalyst. It could be, you know, any change in terms of viewership, people watching. Maybe, you know, satellite goes away, and you have to turn to the internet, or there's some direct-to-consumer offerings or maybe a new social networking platform, like when TikTok came along or something like that. But there's gonna be some catalyst that's gonna drive internet growth. I'm just not sure what that is or when that is going to happen. But certainly, over the, you know, 30-plus years of the internet, there's been those catalysts- Mm-hmm ... from time to time. You kind of helpfully broke down the traffic estate, if you will, for us, right? It's streaming media, it's social media, it's gaming. Any other types of traffic that are kind of on the up and up? And then within those three types of traffic, where has there been maybe most pressure? Mm. How would you frame kind of the structural versus transient dynamics for kind of each of those traffic types? 'Cause at some point, you know, we're gonna have more gaming hits come out- Right ... right? So that should help. Mm-hmm. You know, any framing on that? ... So it's interesting. This sort of informed one of our decisions to go in a different direction, but one of the fastest-growing traffic sources on the internet is API traffic. Mm-hmm. Now, it's not a lot of bits, so it doesn't drive your CDN business, but it did inform us or help inform us with our decision to buy Noname Security. Mm-hmm ...get into the API security business, because that is a growing, you know, every modern application uses APIs. It's a growing threat vector, so that is, you know, obviously a good trend for the security business, but not necessarily the CDN business. In terms of the dynamics in the business, obviously there's two when it comes to CDN. One is traffic growth, the other one is pricing. Right. So we're starting to see some pricing normalization in line with what you see for traffic growth. It does take a while for that to sort of play out, but if a customer is coming to me saying, "Hey, look, my traffic's gonna double next year, maybe I'm increasing my bit rates, or I'm launching in five new countries," or whatever, they're gonna get a much better unit economic answer out of me than if their traffic is flat or declining or growing at 5%. So that dynamic will play itself out. There's fewer competitors in the market. There was a couple of large-scale players that exited the market last year. So there's always gonna be healthy competition, but there's not anything I would call out from that perspective in terms of our business. I think if you look across the industry, most of us are experiencing the same thing. So it's not that there's big traffic shifts, so in terms of, like, macro trends, there's not a big shift of traffic going from one provider to another. It's just a dearth of traffic growth. You did call out a specific social media customer who's changed their traffic patterns- Mm-hmm ... for business reasons. I'd love for you to give us a recap on- Sure ... you know, this behavioral change, how that's, you know, been, you know, creating a downward pressure of sorts in your delivery franchise. And, you know, how should we think about sort of the worst-case scenario? 'Cause I think there's some elements of DIY traffic that you talked about- Sure ... some insourcing. So again, how much of that would be maybe idiosyncratic to the social media customer versus, hey, is this a general trend that we might see bleed into? Mm ... other types of traffic carriers, that DIY is starting to become a bigger issue or challenge? Yeah, no, it's a good question, and I get this question a lot. This is stuff that we've seen over time, the customers that will optimize for their traffic. You know, going back years ago, you see some social media sites that have the auto-start for video, where you just go to a site, and the video is automatically playing. Mm. Customers over time will sometimes shut that off and realize that, you know what? That's driving a tremendous amount of traffic, and maybe people aren't actually watching it. It's just because the site pops up, it drives that. So you see things like that. With the case of this particular customer, they were doing something called prefetching, which would be loading your cache with a certain amount of video. Obviously, everyone at some point abandons their session, so you serve some bits that you don't get a chance to monetize. So optimizing that, you know, formula between the performance gains you get by prefetching versus the cost, you know, this particular customer was looking at that for the first time. DIY is another thing. DIY, do it yourself. You know, it's funny, I tried to name all of the customers around the planet that have their own CDNs, and I could only come up with about 12. Mm-hmm. So it's not a phenomenon that is prevalent, and it's not something that makes a lot of sense. You need to be at a pretty massive scale. Mm-hmm. You know, you're talking the Googles, Facebooks, Netflix, Disneys of the world that will have their own CDNs because they have enough traffic that the economics can start to make some sense. Obviously, if traffic's not growing, it becomes challenging for them as well because their labor costs are going up. They're not getting the same type of efficiency with bandwidth in terms of their buying power, et cetera. But that's something that is very isolated, but it does tend to be with the biggest customers. So if I look at my biggest 1% customers, most of them have had their own CDNs for a long time. Generally speaking, there's only a handful that have, do pretty much everything themselves. Most folks that do have their own CDNs do wanna have two or three public CDNs in the mix. Just makes sense for redundancy, for performance reasons, cost reason, et cetera. So in this particular case, it was just a shift from doing some optimizations for cost, and then just shifting a little bit more than they had planned at the beginning of the year to themselves. But we've largely caught that. We've baked that into our guidance. It's playing out exactly as we had expected. You know, are there any considerations with respect to, you know, some regulatory changes that could maybe create some tail risk around this particular- Sure ... customer spending patterns, and how should we brace for that? Yeah. Yeah, great question. As a matter of fact, in our 10-K, we did put in a disclosure that we were not required to do. It didn't... It wasn't material enough, but we decided it was prudent to do and want to let investors know. If the particular site is banned in the U.S., which there is some talk that that may happen, whether- who knows what happens in the court systems? That would be about a $50 million, 1.5% hit to us, so we have disclosed that so folks know, if that does happen, what the potential risk is. You can handicap it yourself in terms of does the government actually- Mm ... have the capability to ban that? Seems like a stretch to me, but who knows? You never know how stuff will work. That's, that's a fun statistical probability exercise- Exactly ... right? You know, any other patterns of behavior from this particular customer? And you brought up this whole notion of multi-CDNing. Mm-hmm. You know, I think that's become maybe a little bit more pervasive than it was in years past. So would you say this particular customer or, or frankly, this notion of multi-CDNing, is that a pretty contained dynamic? Because ultimately, you might be in a situation where you are sharing more of your traffic- Mm ... with, you know, a smaller set of competitors, but sharing your traffic nonetheless. Sure. So how much should we be thinking about that as a potential sustained negative input from a quantity of traffic on your platform perspective? Yeah, good question. So it's multi-CDN has been around for as long as I've been in the industry, 24 years. So it's not a new phenomenon. Typically, when you see the pattern we generally see is you get someone who either starts off with one and then introduces another, and then you get the folks that get into the ridiculous, where they might bring in six CDNs. And whenever they do that, they always go back down to a manageable group, 'cause now you're managing five or six different vendors- Mm-hmm ... with different platforms, different reporting. You have to negotiate six different contracts. You end up hiring a team to manage your vendor relationships, which makes no sense at all. So it generally tends to normalize down to two or three. Typically, it's either do it yourself with two, or maybe you have two if you're just using public CDNs. But in terms of what's impacted us this year, the shifts of that haven't really had any material impact, good or bad. Fair enough. So we talked a lot about the Q side of the equation. Let's talk about the P side of the equation, which is pricing, and you did allude to it earlier. You know, I think you've been very deliberate in some of the steps you've taken to exercise more pricing discipline. Yep. I'd love, for the benefit of the audience, for you to itemize kind of some of the things you've done. But, you know, that's not necessarily shown up or manifested in shoring up your delivery growth, right? Mm-hmm. It's right, you know, it's equally as important- Yep ... a part of- Yep ... how the delivery trajectory, trends, but you know, just the itemization of some of the very discrete things you've done on a- Sure ... pricing side, to drive better unit economics, but then also, kind of giving us a flavor of, well, why hasn't that, those really good efforts, why have they not been showing up in the numbers? Yeah, sure. So there's really sort of two motions. One is just getting the price declines to align with the traffic growth. So if you're somebody who historically has been growing 30%, 40%, 50%, even doubling, you tend to get much higher unit economic breaks when your contract comes up for renewal. If you're not growing, or it's 5% or 10%, we're gonna obviously dramatically reduce the type of rate declines. That takes, you know, 18-24 months to kind of play out across the entire customer base. Obviously, the bigger customers will see it a little bit more immediately, but it's still going down. So if I do a even if I give somebody a 5% or 10% break in traffic, if they're not growing, their revenue drops by 5% or 10%, obviously, the next quarter. So, the other thing we're doing is with a certain class of traffic, and it's usually your big software and gaming customers- Mm-hmm ... you tend to have a ratio between the spike in traffic to the day-to-day traffic. So let's say, for example, somebody wants to get a software update out to 100 million people, and the file size is a few gigabytes, excuse me. Is this a certain fruit-based company? Well, not necessarily. There's a number of them. Right. There's a handful of them, both in gaming and in software. Mm-hmm. But they want to do that in 36 hours or 24 hours. That drives an enormous peak on your network, and the peak is the most expensive thing to build out for. So the balance between how much you get day to day, what the unit economics are, and how much of a ratio you allow somebody to peak, is probably the biggest economic decision you can make in terms of the bottom line. And there, what we were finding is, in some cases, customers might have four or five CDNs, but put those days when the peaks came, we were taking the bulk of it. We decided to push back on that. We've dramatically dropped our CapEx in the CDN business. That's the- Mm-hmm ... probably the best outcome from that. Mm-hmm. Now the customers are either extending the period of time to get the downloads out, shifting the load between some, and we've walked away from some business as well. If we can't get the right equation there, we'll turn some of that business away, which doesn't make a lot of sense for us to take that, especially as the delivery business is growing. You talked about API traffic earlier and maybe changing your position on how you monetize that traffic. What have been the specific steps you've taken to drive more discrete and discretely better pricing behavior for API traffic? 'Cause I think you've talked historically- Yeah ... about it being maybe more computationally intensive- Yeah ... even though the volumes are lower. Yeah, so typically, you find that with different types of web traffic in general. Sure. So you might have, like, say, a shopping cart, for example. It requires a bit more CPU because it's different for everybody. Mm-hmm. And the techniques you use to accelerate something like a shopping cart is very different than caching a download that everybody gets. So with that comes some advanced features, and we do tend to get much higher unit economics- Mm ... from a per bit rate. It's not as price sensitive in terms of, you know, the unit economics. Generally speaking, those contracts are smaller in terms of, you know, they're not your multimillion-dollar contracts, but they can be, you know, $1 million or $2 million or whatever. But it's not, you know, the, the, the big 1% type customer, so there's not as much sensitivity around that. But you do find ways of monetizing. Sometimes you can charge by the hit. Mm-hmm. So you're looking at a different metric. It's not necessarily the bits that are being served, but it's more the type of the amount of time that your servers are being utilized, so the hits that go to the network versus the bits. So there's a number of different products that we sell, and we monetize traffic differently across the platform. And just the last framing on this, you know, internationally, when you think about some of the monetization potential from the delivery standpoint, is there a lot of arbitrage to be had from a pricing perspective versus the U.S.? And, you know, that question just stems from, hey, your international business generally has been performing- Yep ... much better. Mm ... than your U.S. business? ... Yeah, I, I think there's a couple of things there. One, yes, there is areas of the world that are more expensive, so you do tend to price premium certain areas of delivery, and that could be for international and U.S. traffic. It's more of where is the traffic going to? So I could have a U.S. customer serving in, say, the Middle East or Latin America or Southeast Asia, where it's more expensive, so you might get a premium for that. Also, just from a competitive landscape outside the U.S., we don't have as many pure-play competitors, especially in the CDN business, where we've found that the investments we've made in go-to-market, in our support organization, in our SE organization, and having that local expertise, even with security, it makes a big difference, so that you are able to get more market share but also get a bit more of a premium as well. And just to kind of round out the conversation on delivery, I'll have you take out your crystal ball now and ask you, you know, delivery has kind of been struggling, kind of the double-digit declining zip code. How do we get a path back to a lesser rate of decline? Sure ... and frankly, stabilization? You know, what are some of the factors and variables that need to unfold favorably- Mm ... for that to transpire? Yeah, I'd say, obviously the fastest way is traffic growth, and we see something that... the catalyst that drives significant traffic, that'll happen much faster. I don't see that today. I don't know when that's gonna happen, but at some point, there'll be something that drives traffic growth, and that will be the fastest path back. The pricing takes a while to kind of normalize itself through because you've got thousands of customers that are going through that pricing dynamic, so that'll take a little bit longer to take effect. But it's really just the... You know, once you start to see traffic even grow several percentage points- Mm ... will be helpful in terms of, you know, from where we are today. Competition, maybe there's some disruption in the market and some competitors exit. That can obviously move some share. That could be obviously helpful, if that were to happen. You know, obviously you don't count on that or depend on that, but that is another thing that could happen. I'd be watching the sequential declines in CDN because you obviously, after anniversary, we've had some pretty big declines over the first couple of quarters. But as you get to the back half of the year, maybe you start to see something back half of next year if we start to stabilize there, as you get back to that level. Conversely, you know, what are sort of some of the risks that could actually stunt this recovery, right? Like, what is the potential downside risk for actually delivery to kind of continue to bop along at the, the- Yeah, I mean, it could be, you know, traffic declining- Mm ... if usage on the internet were to go down, probably unlikely that happens- Mm-hmm ... but it's possible. Mm-hmm. More regulatory issues. Mm ... we have seen from time to time, if, you know, a regulatory body comes in and bans a certain type of traffic. Right. Probably not a huge risk there. Any kind of meaningful shift to DIY- Mm ... I don't see the economic reason for that to happen, but that can also cause some disruption, where you maybe for several quarters, you might be back at that kind of double-digit decline. But it'd have to be something like that that would drive it. Okay, fair enough. Shifting gears to compute, I want to start with compute. It's small, but it's mighty. Yes. So you know, about 10% of your business today, right? Uh, 15. 15. If you take the full compute. The full compute, yep. Yeah. So about 15% of your business today. What have been the principal drivers behind this sort of catapulting from kind of non-existent literally two years ago? Yeah ... to 15% of the business? Yeah, you know, like I said, we've always been in kind of the edge compute business. We've always had a storage business. It was small, $50 million, et cetera. And, you know, for the edge, the edge computing or functions as a service, think about that as doing some compute for websites and web properties, like doing an A/B test for advertising or maybe setting up a waiting room for someone who's selling tickets, where you can run that sort of whether it's JavaScript or, you know, that type of code on your network to offload your customers from having to do it themselves. You know, you get a premium for that. It was a nice business. You know, some of the image optimization and video optimization we would do that would be compute-intensive, you could sell separately. But that was sort of a limited market, growing but not a huge market. When we bought Linode, that entered us into the opportunity to really go after the big multi-hundred-billion-dollar compute business. So now if you want to build and run your commerce stack, you can do that on us. If you want to run your encoding and transcoding, you can do that on us instead of using a hyperscaler. So we decided to get into that business for two reasons. Number one, we had a few customers approach us and said: "What I can get from the hyperscalers today, isn't gonna work. I need to be massively distributed. Can I run this code in your network on... in multiple locations?" We ended up doing a couple custom things for a few customers, and we started to see that that was becoming a bit of a pattern, that people were coming to us, asking us to do more than just functions as a service, more traditional compute, and we saw the opportunity with the Linode acquisition to get into that business, had a platform that wasn't designed for enterprise but had all of the things that we wanted. Self-service ability, it had a lot of the functionality, had, you know, stuff that all SMBs were doing with them that our enterprise customers wanted to do. We obviously had to harden the platform, make it more resilient, add locations, capacity, you know, different types of capabilities, and, you know, comply with certain compliance standards like PCI, et cetera. So we went on a two-year journey to do that. But also, the other reason was we were spending a fortune with the hyperscalers. Right. And we were finding that, especially as security was growing, the need for compute to do all the analytics around, is this a machine or a human? What type of machine, what type of human, is it the right human? All that kind of stuff, was requiring a lot of CPU and compute, so that we said, "You know what?" That cost is growing much faster than the business is growing, and it's starting to show up in our gross margin. We should be doing this in-house. So we took the Linode platform, we moved most of our spend, over about two-thirds of that is done now, will be done by, you know, early next year, moving everything onto that platform. So we're our first, quote-unquote, $100 million customer, although we don't record any revenue for it, but we're the size and scale of that. So we had the cost savings and also the push from the customers. Now, what's really exciting is the enterprise compute, as we call it, which is someone who could go to an AWS, a Google, or an Azure or an OCI and buy from them, they're now buying from us. That business has ramped up to about a $50 million run rate business as of last quarter. We expect it to be over $100 million by the end of this year, growing incredibly quickly, and we're seeing great participation geographically from our reps and our customers across the globe. We initially thought this was gonna be primarily coming from the media customers. We've got, you know, big customers of ours, very cost-conscious, that, you know, had kind of pushed us initially into the compute business to begin with. What we're finding, though, is, yes, we're making traction there, but we're getting traction across many verticals, many different use cases, things like observability, ad targeting, ad decisioning. We're seeing compliance, you know, data localization, folks that are looking at saving money on egress fees, a lot of storage use cases. We're seeing even in financial services, complying with certain low latency requirements for certain payment applications and things like that, so that business is growing very, very, very quickly. It's a massive opportunity for us, and I think it's something that a lot of people have been very skeptical that we'd be able to make any kind of a dent. On that notion, you know, I think there's definitely. It feels like a David versus Goliath dynamic within compute. Sure. You know, AWS, Azure, Google, being more of the household names now for enterprises. You know, how are you ringing the doorbell and, you know, how is the door being opened for you? Because, you know, you've been a relatively new entrant in the market. Mm-hmm. Yep. Yep. Yeah, so obviously, you know, we've got relationships with a lot of customers. If you think about the spend for CDN, I mean, there's no magic formula, but we've got customers that might be spending $1 for CDN or spending $10 to $20 on compute. So the opportunity just within our installed base is in the tens of billions of dollars. Now, I think people wrongly think it's a zero-sum game, meaning it's a binary switch where I say, "I'm gonna use Akamai, or I'm gonna use a hyperscaler." No, it's, "I'm gonna use a hyperscaler, and I'm gonna use Akamai," right? So we've been able to, in some cases, win new workloads or win workloads from an AWS or an Azure or Google because it's cheaper, it performs better. The multi-cloud phenomenon was already going on, so it's not something unique, and we're trying to force an industry that has been single-sourced to think about going with multi-providers. You know, you just look at what happened with the whole CrowdStrike outage and the fact that people had single-sourced and say, "You know what? I've got too much reliance on one particular vendor." You know, we came from a world of multi-CDN, so we understand that world, that people are gonna look for other, you know, providers so that you don't have an issue with one, and it knocks you completely offline. So we're finding that we're, you know, coexisting in this world. In some cases, people are coming to us to save money. Some people just wanna use a competitor or a competitive offering for someone who doesn't compete with them. We have a lot of media companies that have some of the rights that they have for years get stolen from them by some of these big hyperscalers, that they're funding some of that, you know, ability- Mm-hmm ... to be able to compete with them. So, you know, I'd say it's relying on some relationships that we've had for years, and also we're finding a lot of the growth is coming from new customers to Akamai that have never bought from us- Mm-hmm ... verticals that we're traditionally not strong in. So the growth is pretty ubiquitous across- Mm-hmm ... existing, new, across different verticals, use cases, much healthier base of business in the first $50 million to $100 million than we had initially expected. If you just looked at the cross-section of your compute customers, would you suggest that it's a much more diversified base than, say, just your delivery customers? And is it acting as an opportunity or a conduit for more new logos- Mm-hmm ... to engage with you? Sure. In, you know, ultimately, is it helping your new customer acquisition velocity? Yep, absolutely. Yeah, so I would say today it's pretty similar in terms of the diversification. The demographics. Yeah. Yeah, yeah. But, I'd say there are some verticals that today we traditionally don't sell into, that spend a fortune in not only compute but also in security, so things like Guardicore and API security, where it doesn't have to be CDN-adjacent. Mm-hmm. That. So between those products and compute does open up the opportunity for a lot of new... Mm-hmm ... business for us, and we are seeing that. With Guardicore, most of their growth is coming from new customers to Akamai. Mm-hmm. They've never been Akamai customers, and we're starting to see a bit of that with compute, and we'll make some shifts in our go-to-market, and we'll make some investments in our channel, as well as with our direct hunting force, because the ROI is there. Mm-hmm. It makes sense to go after some of these verticals that traditionally aren't big web properties but spend a tremendous amount of money on- Mm-hmm ... compute and security. You said two things, and I wanna try to link them. You said, the Connected Cloud is, you know, derives 10 to 20 times more value to a customer versus a CDN dollar, right? Well, they're spending more. They're spending more, right. The volume. But in the same breath, you said you're better, cheaper, faster than the hyperscalers, right? So just from a pricing standpoint and how you're competing in the market, how are you achieving both those, what appear to be sort of opposing objectives. Mm-hmm. You're cheaper, but you're still able to extract- Yeah 10 to 20 times the value. Yeah, I mean, first of all, there's a well-established market for compute, and, you know, despite the fact that there's three major competitors, anyone who's purchased from them know that you really don't start to see any kind of meaningful discounts until you get to really big- Mm ... spend amounts. I mean, you could be spending $10 million or $15 million, and the discounts aren't all that interesting. But you're spending hundreds or a billion, you start to get into some pretty interesting numbers there. So there's an enormous profit pool in that business today. We also have a lot of synergy that we bring with our... You know, we moved about 1,000 people out of our delivery business into compute that have done a lot of that engineering work, the build-out, the support of running a distributed platform. The same people that are building the CDN are building the compute platform. It's a very transferable skill. We're leveraging our existing sales force today. We haven't made a huge investment in go-to-market. I don't think we need to. Like I said, we'll shift some dollars from pockets and- Mm-hmm ... put more dollars towards compute, but it won't be a dramatic increase in our overall spend. So there's some natural synergies that we're getting out of that. Also, if you think about one of the big profit pools that we can disrupt for virtually nothing is this egress profit pool. So as people access their data and pull data out of the hyperscalers, they pay an egress fee, which is very expensive. We deliver hundreds of terabits per second. We have one of the biggest backbones in the world, and we've Connected that to all of our sites. So for me to deliver the traffic that someone was paying for egress doesn't cost me anything. So I can offer that for free and get- make my margin in other areas. We are. You know, I think our list prices are roughly half of what- Mm-hmm ... the hyperscalers are. If you go to the website, you can see that, and there's still an enormous margin there, and it's just been one of those markets that's been sort of ripe for disruption, and there's enormous profits there that, you know, I think we can, you know, go in and create a good value for our customers and still drive very attractive economics. And I'm jumping a little bit, but you've been very disciplined about your CapEx and network CapEx- Yes ... and you talked about driving a lot more efficiency- Mm-hmm ... within that base. Where is your comfort level vis-à-vis what the network capacity is in being able to support outsized growth? Yeah ... in the compute- Mm ... business? I mean, you're tracking mid-20s today, and it seems like there is a clear path to kind of at least continue that trajectory- Mm ... maybe even improve it, given the profit pool opportunity you talked about. But just from a capital intensity perspective, is that gonna require, you know, a step up, or can we think about it as, hey, all that build-out you did a couple of years ago for the big streaming media launches, you're actually repurposing a heck of a lot of that capacity towards these higher value and better monetized monetization outcomes? Yeah, so I'll break it in two pieces. The CDN side, we've dramatically lowered that to low single digits. You'll always have some growth in your, you know, in certain regions and things like that, and there's some amount of the network you want to replace every year for economic reasons. You have some old servers that may have been in the network for 10 years, and you get better, you know, throughput and with the newer machines and things like that. So there's always some small 1% or 2% kind of numbers in terms of replacements and things like that, but it's not a wholesale replacement. So that we've driven that down to a very sustainable level here. Now, if we see a massive growth in traffic, obviously it'll tick up, but so will revenue. On the compute side, we actually took our guidance up and didn't take our CapEx up. Mm-hmm, mm-hmm. So we do have extra capacity to sell today. As we grow from that enterprise compute going from 50 to 100 to two to three to five to a billion, I think the CapEx can stay in sort of the ranges that we're now, kind of that 15% to 19% of the total business. Remember, half of that is R&D CapEx, but somewhere in that range probably gets you to that sort of first billion. You know, I think in a year, if I get a big opportunity where a customer comes to me and says: "I want to move $100 million worth of spend, and I want to do it in a couple of data centers concentrated into a few," I may have to take CapEx up a bit there, but you do have additional revenue that goes along with it. Mm-hmm. You know, I think people also have kind of probably misunderstood that a bit and thought... Well, if I look at the hyperscalers, they're out buying land, these massive data centers, sometimes building their own- Mm-hmm ... chipsets and power. That's way down the road. You know, if we ever get to that point, that's a high-class problem to have. Right. Right now, you can build a nice, profitable business the way we're doing it today by getting into some of these lease facilities, 5, 10 megawatts, expandable to 30-50 megawatts. Once you get above that, you're $2 billion. Maybe the CapEx trajectory changes at that time, but as does the whole growth of the company at that point. So steady as she goes for CapEx right now? Steady as she goes for now, yeah, and obviously, if we have big deals to announce, we'll talk about them, and if they're needle moving, and they need to move the CapEx a bit, we'll put it in, you know, in context for you so you understand, hey, we may need to go up 1% or 2% because we signed X or Y, and it's gonna add to the numbers we already gave you. But kind of steady as she goes, it's somewhere in that range. Fair enough. I want to move to the security franchise. There is so much interesting momentum, such a spectrum of capabilities in here. Can you talk to us about the powerhouse solutions- Mm-hmm ... within the security franchise? And then conversely, you know, some of the areas where maybe you've been around for a very long time, and maybe we've seen maybe some more plateauing or- Sure ... maturing growth. Sure. Because I think there is an element of, hey, you've got rockstar products that are growing really fast, and then you've got older, more mature products. Correct. Yeah. You know, so if you think about the business, I'll break it into two pieces. There's the web or CDN-adjacent security products, and then there's more traditional enterprise security products. I'll talk about the web stuff first. There you have your web application firewall, your bot management, your denial-of-service protection, Page Integrity Manager. That business has been around for ten plus years. And that constitutes roughly. That's the majority of the revenue. Okay. That's probably two-thirds of the revenue, three-quarters of the revenue. That business has been growing 15% to 20% for the last, you know, five years plus. You know, it was in the mid- to high 20s for a while, and it's kind of down in the 10s now. WAF is by far the biggest piece of that. Mm-hmm. Denial of service has been probably around the longest. That is a low single digit kind of growing business. Occasionally, you may have attacks for things like what we saw with Killnet in the healthcare industry, where you get a burst of business for six to 12 months, and that might get to kind of high single- to low double-digit for a year or something. The WAF business has been probably outperformed everybody's expectations. People say, "Oh, how big can that business be?" It's over $1 billion today. It's been growing at, you know, very healthy growth rates. Very high penetration rate. Mm-hmm ... in the install base. We tend to skew towards the top of the pyramid in terms of the biggest web properties, so we have the biggest, you know, applications and web properties in the world. That is inevitably going to slow down. Mm-hmm. Bot Management was a capability we added that was a great, very fast grower. That's starting to get to maturity, so that's gonna slow down a bit as well. Then, so from, from that perspective, I would expect the web side, the bigger businesses, to slow a bit. But the enterprise business, the Guardicore micro-segmentation business, growing incredibly fast. Mm. That's reached over $100 million. It was growing at... Last time we broke it out several quarters ago, we said we had eclipsed the $100 million run rate. It was, at the time, growing 60% a year. There's enormous opportunity there beyond just our existing customer base, as we talked about. That is gonna continue to grow dramatically for the next several years, and as it gets larger, it will become a bigger contributor to the overall growth. API security, which kind of fits both, because you have web applications that have APIs- Right ... but you also have a lot of non-applications. So I'm gonna put it in that family, even though we will see a very high attach rate for our web security business, to our, to our WAF business. That, by... You know, we're the market leader there with Noname Security now. That was about a $40 million business. You know, some analysts have pegged that at $1 billion to $3 billion over the next five to 10 years, so that can be a very, very big business for us over time. And again, that reaches beyond the traditional security customer- Mm ... and into, you know, every enterprise in the world. Right. We also have our secure web gateway, multi-factor authentication, and our, access, remote access product that the Guardicore team has now embedded into- Sure ... the control plane that they have for Guardicore. So you now have one pane of glass that you can set policy for all of that. So we're starting to see some drag along growth with that. But that's where the future growth is in that area. We're seeing some really good traction there. Big markets, potentially, market-leading products. So over time, as this web business slows down, that business will pick up, and hopefully we can maintain very attractive growth rates into the future. And we're not done. Mm-hmm. We're still investing in security. We're still active shoppers from an M&A perspective. M&A is gonna continue to be part of our overall strategy. I don't think you'll see us change our posture, probably be similar type deals that we've done in the past. Mm-hmm. I don't think we need to do anything transformative, but, you know, we'll still add capabilities that we think will make sense. But I think we've done a pretty good job there and continue to do so. So good segue into my last question for you: capital and resource allocation. Sure. You know, you've been pretty active in the M&A markets. Yep ... in the last three years. So high level, you know, broader views on asset valuations. You know, what do you think about the bid-ask spread in the private markets? You know, where has the tone shift been the most dramatic? Again, just because you have been in the markets- Yeah ... you have a good pulse on this, and then relatedly, when we think about, you know, your operating margin cadence, your free cash flow generation, and free cash flow margin cadence, just from an organic investment perspective- Mm-hmm ... you know, what are some of the puts and takes around that? You know, I think earlier you talked about the insourcing dynamic. Sure. That's been a huge boon. Mm-hmm. You've been disciplined on the investment, so kind of a two-headed monster of a question for you- Yeah ... on, you know, views on M&A- Yeah ... and, organic. Sure, yeah. M&A is great when you can find the right thing to plug in, and I, and what I'm starting to see now is the dynamic of companies that raised a lot of money, that are now starting to look at doing another round. To me, the, some of the most attractive assets are the ones like Noname, that were at $40 million, or Guardicore, that was about $20 million-ish when we bought them, where they were just getting to the point where they're looking at doing a much bigger round, very dilutive, and making a big investment and go to market. They've already proved the product, they've got some traction, and now they're looking at making a very expensive investment and go to market. If we can take that and plug that in, and grow it like we did with Guardicore, we got to a hundred million very, very quickly after that acquisition. Right. Being, you know, that the security franchise is roughly $2 billion now, you need to move the needle pretty quickly. Mm. Investors want to see an immediate return. Organic investments take time. It takes five to seven years to get to $50 million to $100 million in revenue. This is something you're building. So M&A can cut off five years of that journey and get you to springboard pretty quickly. Valuations are still nuts in security. You do find more rational folks when you're faced with that really dilutive round, and that big round, when you have to make the decision of: Do I wanna put my head down and go another five years before I get to an exit, or do I wanna exit now at a fairly reasonable price and, you know, take the next journey with a public company to help me get to that next level of growth? You know, some of the tuck-ins, those are generally reasonably valued, 'cause they don't have much traction. So we'll, we'll still kind of play around in those worlds. I don't see us, again, doing something crazy transformative. And again, I think the patience of investors to make big investments... If I said, "Hey, I'm gonna take margins down four points, trust me, we're gonna go build something great," I don't know that our investors have the patience for that, so that's very difficult to do. So you wanna sprinkle in investments in areas where you think you can do some development yourself, like with API security, some of the capabilities for blocking and protecting. We'll probably do a lot of that ourselves. There's not a lot of companies out there to acquire for that, but it is gonna be, you know, a continuing part of our process. So is M&A and buybacks kind of the sequence? Yeah, so, you know, obviously, if you can find the right M&A and start to grow and grow profitably, that's the best use of capital. Buybacks have been effective. We're, you know, buying back- Mm-hmm ... basically about 1% to 2% of our outstanding shares. If you look at over the last five to 10 years, as our share count's come down by about that. Mm-hmm. It's not our stated strategy, but we've been pretty opportunistic when opportunity presents itself. But we do offset all of the dilution from equity comp, which is a big strategy for us to have our employees be shareholders of the company. We find that we get better engagement scores, lower turnover, it's a good recruiting tool, and folks are more bought in with some of, especially the cost savings initiatives. Fantastic. Well, I know we ran over, but thank you so much. Thank you. I really appreciate all your time today. Thank you.