Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2019 Akamai Technologies, Inc. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tom Barth, Head of Investor Relations. Please go ahead.

Tom Barth - Head of Investor Relations

Thank you and good afternoon everyone. Thank you for joining Akamai's fourth quarter and fiscal year 2019 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 material differently from those expressed or implied by such statements. Additional information concerning these factors is contained in Akamai's filings with the SEC including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's view on February 11th, 2020. Akamai disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we'll 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 please turn the call over to Tom. Thanks, Tom and thank you all for joining us today. Akamai delivered excellent results in the fourth quarter. Revenue was $772 million, up 8% over Q4 in 2018 and up 9% in constant currency. This very strong result was driven by the continued rapid growth of our security business, a better than expected holiday commerce season, and substantial increases in traffic for our media customers. Our non-GAAP operating margin in Q4 was 29%, up 1 point over Q4 in 2018. Q4 non-GAAP EPS was $1.23 per diluted share, up 15% year-over-year and up 16% in constant currency. These excellent results were due to our strong revenue growth, the benefit from cost reductions made over the past year, and a lower tax rate. For the full year, we exceeded our projections on both the top and bottom lines. Revenue was $2.89 billion, up 8% over the prior year in constant currency. We're especially pleased to report that we expanded non-GAAP operating margin to 29% in 2019, up substantially from 24% in 2017 and putting us very close to our target of 30% operating margin in 2020. Non-GAAP EPS for 2019 was $4.49, up $0.87 or 24% over 2018. We generated $1.1 billion in cash from operations last year. In Q4, our security portfolio continued to be the fastest growing part of our business with revenue of $238 million, up a very strong 29% year-over-year in constant currency. Security revenue for the year was $849 million and represented 29% of our total revenue in 2019. We believe that our security business is poised to make Akamai one of the very few publicly traded companies that generate more than $1 billion in annual revenue from cyber security solutions. In 2019, over 1,500 enterprises relied on our market leading Kona Site Defender and Bot Manager solutions to defend against more than 46 billion malicious login attempts and 6 billion web application attacks, an increase of 150% over 2018. Both these services continue to be recognized as best-in-class by the leading analyst firms. For example, last quarter and for the second year in a row, Akamai was named as a leader in Gartner's report on Critical Capabilities for Cloud Web Application Firewall Services and we received the highest scores in two key use cases. Just last month, Forrester named Akamai as a leader in its New Wave Bot Management competitive vendor evaluation. They said, Akamai leads the pack with robust attack response and reporting capabilities and they called us the best fit for companies looking to thwart bots at the edge. That's important because we believe that the edge is the only place where you can successfully defend against large-scale bot attacks. Last quarter, Forrester also elevated Akamai to the leaders category in its Zero Trust eXtended Platform Wave awarding us the highest possible scores in five areas including workforce security, zero trust vision, and strategy. I'm especially excited about our continued innovation in cyber security, which has resulted in the development of several new products that will leverage the strength of our Edge platform and that we believe can drive continuing growth going forward. These new products include Secure Web Gateway, Identity Cloud, Enterprise Defender, Multi-Factor Authentication, and Page Integrity Manager. Page Integrity Manager addresses a new and rapidly growing attack that most organizations have no visibility into or defenses for, leaving them exposed to data breaches and regulatory actions. The challenge is that most of the content on a typical website or app today comes from third-party software or scripts for things like ads, analytics, social media, and so on. The problem with third-party content is it's hard to keep track of and to make sure that it's safe and increasingly it's not safe. That's because attackers have figured out that they don't have to steal personal information directly from the website, instead, they still it from end users by using malware that they've inserted into the third-party content. Akamai Page Integrity Manager is designed to protect our customers' users from malware no matter where it comes from and also to alert our customers when we find malware on their site or on sites that they link to. Initial customer interest in this new service has been very high and we're looking forward to exiting beta and selling this product more widely later in the year. Our media and carrier division also performed well in the fourth quarter due to strong demand for OTT video services and software and gaming downloads. In Q4, we continued to grow traffic on our platform much faster than published growth rates for the Internet as a whole, meaning that we continued to gain traffic share and on December 3rd, we set an incredible record for peak traffic in 2019 of 121 terabits per second, demonstrating the enormous and unmatched scale of the Akamai Edge platform. This record didn't last long though as we've already delivered more traffic on multiple occasions during the first five weeks of 2020. In fact, I checked our traffic stats just a few minutes ago and it looks like we're currently delivering about 140 terabits per second from the Akamai Edge platform. It's important to note that these traffic levels are not like the theoretical capacity that some competitors in the marketplace claim. Our numbers measure the actual traffic that we deliver on behalf of our customers. It's also important to realize that the only way to really get anywhere close to Akamai's scale is by having a true edge platform. That's because you need to be very close to end users in order to gain access to the last mile bandwidth necessary to deliver large amounts of traffic with great performance. If you try to deliver content from the data centers at the core of the Internet, you run into problems with performance and scale as the traffic gets clogged in Internet peering points before it reaches the last mile. Delivering from the core is also more costly since you need to use expensive transit to reach end users. This is one reason why Akamai is so much more profitable than the competition. Of course, all the growing interest in the edge has led many vendors to play up any connection they can make to the edge, no matter how tenuous, but we believe that if you look carefully, you will see that the others have a ton of catching up to do to match what Akamai has been doing at the edge and doing profitably for a very long time. We're excited by the opportunities in front of us as the OTT marketplace continues to develop and we believe that our unmatched global capacity positions Akamai very well for 2020 and beyond. Overall, we're very pleased with our performance last year. We grew revenue and continued to expand our margins. We grew non-GAAP EPS by 24%. We developed innovative new technology that we believe will help drive future revenue growth and we delivered excellent value to our customers. I want to thank all of Akamai's customers and especially our talented employees for helping us to deliver such great results in 2019. As we enter a new decade, I'm very pleased to see Akamai so well positioned for future growth. As you will soon hear from Ed, we expect to surpass $3 billion in revenue in 2020 with over $1 billion of that total coming from our security business. We also expect to achieve non-GAAP operating margin of 30% and our non-GAAP EPS is projected to approach $5 per share. These are exciting new thresholds for Akamai and I'll now turn the call over to Ed to provide further details. Ed?

Ed McGowan - Executive Vice President, Chief Financial Officer

Thank you, Tom. As Tom outlined Akamai delivered another great quarter in Q4. We exceeded the high end of our guidance range on revenue and earnings. Q4 revenue was $772 million of 8% year-over-year or 9% in constant currency driven by continued strong security growth and higher than expected holiday traffic in our media and commerce verticals. As I mentioned on our last call, holiday seasonality from ecommerce and traffic from our large media customers could play a large role in our Q4 performance and it did. Revenue from our web division was $420 million, up 9% year-over-year and 9% in constant currency. Revenue growth from this group of customers was again driven by our security business as well as higher than expected holiday commerce traffic. Revenue from our media and carrier division was $353 million, up 8% year-over-year and 8% in constant currency. The better than expected growth in media came mainly from strong OTT video traffic. Revenue from our Internet platform customers was $52 million, up 20% from the prior year. It is worth noting that Q4 benefited from approximately $6 million of event specific revenue that we do not expect to reoccur in Q1. Security revenue across the company continued to be very strong and for the fourth quarter was $238 million, up 29% year-over-year and 29% in constant currency. Moving on to revenue by geography. International revenue was $326 million in the fourth quarter, up 17% year-over-year or 18% in constant currency. Foreign exchange fluctuations had very little impact on revenue on a sequential basis, but had a negative impact of $3 million on a year-over-year basis. Sales in our international markets represented 42% of total revenue, up 3 points from Q4 2018 and consistent with Q3 levels. Finally, revenue from our U.S. market was $446 million, up 3% year-over-year.

Moving now to costs. Cash gross margin was 78%, roughly flat with Q3 levels, but down 1 point from the same period last year. GAAP gross margin, which includes both depreciation and stock-based compensation, was 67%, up 2 points from Q3 levels. Non-GAAP cash operating expenses were $285 million, up from Q3 levels and slightly higher than our guidance due primarily to higher commissions and employee bonus expense. Now moving on to profitability. Adjusted EBITDA was $319 million, up $18 million from Q3 and up 6% from the same period in 2018. Our adjusted EBITDA margin was 41%, in line with our guidance, but down 1 point from Q3 and down 1 point from Q4 in 2018. Non-GAAP operating income was $222 million, up $14 million from Q3 levels and up $21 million or 10% from the same period last year. Non-GAAP operating margin came in at 29%, consistent with Q3 levels and up 1 point from Q4 last year. Capital expenditures in Q4 excluding equity compensation and capitalized interest expense were $173 million. This was higher than our guidance range due to increased network investment in anticipation of continued demand from our OTT and gaming customers.

Moving on to earnings. It is worth noting that our Q4 GAAP results include a $10 million restructuring charge and we expect to record an additional restructuring charge of approximately $4 million to $7 million in Q1 of 2020. These charges are primarily related to reductions of approximately 1% of our global workforce. It is important to note these restructuring actions are being taken to enable some rebalancing of our investments, de-investing in some areas and investing in others and to position the company to meet our long-term goals of continued growth and scale. Also included in our restructuring charges are some small capitalized software impairments related to projects we no longer feel provide adequate return on our investment. Therefore, GAAP net income for the fourth quarter was $119 million or $0.73 of earnings per diluted share. Non-GAAP net income was $202 million or $1.23 of earnings per diluted share, up 15% year-over-year, up 16% in constant currency and $0.08 above the high end of our guidance range. This outperformance was driven by higher than expected revenue and a lower non-GAAP effective tax rate due to higher than expected foreign earnings. Taxes included in our non-GAAP earnings were $30 million based on a Q4 effective tax rate of 13%.

Now I will discuss some balance sheet items. We continue to have a very strong balance sheet. As of December 31st, our cash, cash equivalents and marketable securities totaled $2.4 billion. Our total debt at the end of Q4 was $2.3 billion, unchanged from the end of Q3. Now I will review our use of capital. During the fourth quarter, we spent $43 million to repurchase shares, buying back approximately 500,000 shares. We have approximately $765 million remaining on our previously announced share repurchase authorization. Our plan for 2020 is to continue to leverage our share buyback program to fully offset dilution resulting from equity compensation. As we said in prior quarters, we plan to remain active, but disciplined in pursuing additional M&A and we believe that our strong balance sheet provides us with strategic flexibility to take advantage of opportunities as they arise. We also believe our capital allocation approach will allow us to continue to drive shareholder value through investing organically in the business, pursuing M&A, and continued share repurchases. In summary, we are very pleased with our Q4 in 2019 results and we remain confident in our ability to execute on our plans in 2020 and for the long term.

I'd now like to provide guidance for full year 2020 as well as for the first quarter. Looking ahead to the full year, we expect revenue in the range of $3.055 billion to $3.105 billion with over $1 billion of that coming from our security business. We expect adjusted EBITDA margins of approximately 43% and we expect non-GAAP operating margin of 30%. We expect non-GAAP earnings per diluted share of $4.80 to $4.95. This represents year-over-year growth of 7% to 10% and 9% to 12% on a constant currency basis. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 15.5% [Phonetic] to 16.5% [Phonetic] and a fully diluted share count of approximately 164 million shares. Moving on to capex, full year capex is expected to be 18% to 20% of revenue. We again expect full year capex to be higher than normal due to the continued investment in our network capacity.

Before I move on to Q1 guidance, I thought it would be helpful to talk about how we see the year unfolding. Now, I'll highlight some key items. But you may want to think about as you build your models. In the first quarter, we typically see revenue step down sequentially as Q4 is our strongest seasonal quarter. Q4 2019 was a notably strong seasonal quarter. It also included some one-time event revenue which I mentioned earlier. On the expense side, remember that Q1, our employee payroll taxes and 401(k) matching expense reset, costs that will decline throughout the year. In addition, we won't see the full benefit of the restructuring efforts mentioned earlier until Q2. So we expect operating margins to be at the lowest level in Q1 and improve throughout the year. As we look to Q2 and beyond, there are few other factors to take into account. In addition to more global expansion of existing OTT offerings that have been announced for later this year, we are aware of several new direct to consumer OTT launches planned for late spring and early summer. 2020 also includes a Summer Olympics in Q3 as well as the U.S. Presidential election cycle, which typically drives elevated traffic levels in Q3 and Q4. Finally, we expect Q4 to once again be our strongest seasonal quarter.

So with that as a guide, I will provide specific Q1 guidance. We are projecting Q1 revenue in the range of $741 to $755 million or up 6% to 8% in constant currency over Q1 2019. At current spot rates, foreign exchange fluctuations are expected to have a negative $1 million impact on Q1 revenue compared to Q4 levels and having negative $5 million impact on a year-over-year basis. At these revenue levels, we expect cash gross margins of 77%. Q1 non-GAAP operating expenses are projected to be $258 million to $262 million. The decrease in cost over Q4 levels is due mostly to lower incentive compensation-related expenses. Factoring in the cash gross margin and operating expense expectations I just provided, we anticipate Q1 EBITDA margins of approximately 42%. Moving now to depreciation, we expect non-GAAP depreciation expense to be between $97 million to $99 million and we expect non-GAAP operating margin of approximately 29% for Q1. Moving on to capex, we expect to spend approximately $139 million to $149 million excluding equity compensation in the first quarter. This reflects the continued network investments I mentioned previously. And with the overall revenue and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.13 to $1.18 or up 5% to 9% in constant currency. This EPS guidance assumes taxes of approximately $35 million based on an estimated quarterly non-GAAP tax rate of approximately 16% and it also reflects a fully diluted share count of approximately 164 million shares. In summary, we are very pleased with our business performance and with our positioning as we look forward to 2020. Thank you, Tom and I would be happy to take your questions, operator?

Question & Answers

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Sterling Auty with JPMorgan. Your line is now open.

Sterling Auty - JP Morgan - Analyst

Yeah, thanks. Hi guys. So looking at the strength in international revenue growth, is it fair to look at the OTT launches as relying on Akamai more for international distribution versus U.S. or what else explains the real strength internationally?

Ed McGowan - Executive Vice President, Chief Financial Officer

Hey Sterling, this is Ed, I'll take that one. So I'll answer it in two ways. First is the - we record the revenue where the customer is based. So to the extent that there is a U.S. customer that has a launch, that would be considered U.S. revenue but you bring up a really good point. As these folks start to look internationally, we tend to get a greater share of that traffic as our international deployment is much greater than anyone. On the international revenue growth, we're seeing very, very strong growth. If you remember a couple of years ago, we made significant investments in our go-to-market capabilities and also our network that we're seeing great traction especially in Asia Pacific and we recently closed on our acquisition with Exceda and expect to see some decent growth down there as well as that's sort of an underserved market.

Sterling Auty - JP Morgan - Analyst

Okay and then maybe one follow-up, Tom, for you. Looking at some of the newer security, specifically SWG and Identity Cloud, how should we think about the ramp of those solutions within your security portfolio in context of that $1 billion plus revenue guidance for 2020?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, it's early days for both. We're just launching the Secure Internet Gateway. That will be part of Enterprise Threat Protector 3.0. We're really excited about that market, but early days and we're just starting to get the bookings now. So for that to be a major contributor, you're looking at 2021, 2022. Identity Cloud met plan this year and that's already because of an acquisition farther along and we're excited about the potential there in terms of privacy and regulation compliance. As you know, we've now got CCPA in effect in California. Other states are looking to put laws into place. GDPR of course in Europe and I think enterprises are going to be looking for help in dealing with that. So we're optimistic about the future growth there.

Sterling Auty - JP Morgan - Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Robert Gutman with Guggenheim. Your line is now open.

Robert Gutman - Guggenheim Securities - Analyst

Hi, thanks for taking the question. The segment breakout of cloud versus CDN, it seems like from our perspective, the CDN really outperformed in the quarter. So I guess some of that was attributable, you said [Phonetic] there was $6 million of large Internet platform stuff - specific events, but can you talk with a little more clarity about the additional outperformance in the quarter a little more specifically?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, sure, this is Ed. I look at it through two lenses. One, we talked about on the web side, the commerce traffic was much higher than we thought going into the quarter with the Thanksgiving holiday falling as late as it possibly could and fewer shopping days, we were expecting to see a little bit less traffic, we actually saw more. So we're very happy with that and then on the Media side, we saw strong OTT traffic. We saw that as you mentioned with the Internet platforms, that event specific revenue certainly helped. We also saw a very strong live sports especially across Europe. APJ did a lot better than we had expected in terms of traffic. A good gaming quarter, software downloads were strong as well as new devices come online. There's a lot of firmware updates and things like that and just to sort of put it in context for you, the last week of the year was exceptionally strong. On our normal traffic pattern, we tend to see our highest traffic levels on Sundays on a recurring basis. Weekends sometimes can be 15% to 20% higher than we normally see during the week and between the day before Christmas and New Year's Eve, we saw what I would refer to as eight Sundays in terms of elevated traffic, which is something that we typically don't see. So a lot of factors that came into play here both in our web business as well as our media business.

Robert Gutman - Guggenheim Securities - Analyst

Great, thank you.

Operator

Thank you. Our next question comes from the line of James Fish with Piper Sandler. Your line is now open.

James Fish - Piper Sandler - Analyst

Hey guys, congrats on an awesome end of the year and success around the new OTT service launches. I guess, first, how are you thinking about enterprise security investments to get standalone security sales really moving in 2020 and beyond?

Tom Leighton - Chief Executive Officer and Co-Founder

Yes, so we have both on the product and product support side and go-to-market with sales specialists and experts in making enterprise security sales, have a lot of attention on that. We saw substantial increase in revenue and bookings this year. Still relatively small given the early days for Zero Trust and some of the new products that we're bringing out now in enterprise security and of course as you know, our Head of Web Sales is an expert in selling enterprise security services. So we've got a lot of expertise there and there is significant investment because we'd like to see that business really ramp up and I think there is good potential for that.

James Fish - Piper Sandler - Analyst

Got it. And then how do you plan on positioning the - specifically, the Secure Web Gateway in that market given you do have a large competitor out there that's doing fairly well as well as some of the firewall vendors trying to move into the proxy market.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, that's business we want to go out and get and I think there is a lot of greenfield as well. In terms of the cloud solution provider for Secure Web Gateway, pretty small total revenue relatively speaking to what could be and I think we're going to have a very competitive offer and when you combine it with the rest of Akamai's security business, we're the larger player out there, we're well known, we're trusted, we have 1,500 major enterprises using Kona Site Defender already and in some sense this is a very natural partner to that to now protect the enterprise employee and the enterprise apps from importing malware just as we protect the public facing websites from attacks from the outside. So a lot of synergy with what we are the market leader at and we have a lot of trust among the major enterprise CSOs out there and the buyers of functionality like Secure Web Gateway. So I am optimistic about our future there.

James Fish - Piper Sandler - Analyst

Thanks, Tom. Thanks, Ed.

Operator

Thank you. Our next question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Keith Weiss - Morgan Stanley - Analyst

Excellent. Thank you guys for taking the question and very nice quarter, very nice end to a strong year for you guys. As we think about these investments you guys are making to sort of build out capacity and be able to handle the growing OTT traffic, I was wondering if I could get kind of your perspective on the durability of these OTT revenues over time as some of these services become bigger and bigger, is there a risk that these will start to sort of go more in-house and Akamai and the service is going to be more of a transitory step for these OTT companies or do you believe that this could be kind of durable good revenue for you guys over an extended period of time?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, hey, Keith, this is Ed. Good question. Right now, I would say, certainly in the near term, it looks like it's a nice durable revenue stream for us. I'd encourage you to look at the platform customers obviously had good stabilization and growth there. It shows that even in a DIY world, there is still a place for Akamai and especially as these folks start to look to go global, that's a big opportunity for us and it's possible you could see some of these folks take some of the delivery in-house themselves, but just in general most of the OTT folks out there today are going multi CDN and I think that there's going to be a place for us. I don't think all of them will go DIY. It's possible none of them do, but if they do, I think there's still a big place for us.

Tom Leighton - Chief Executive Officer and Co-Founder

At the end of the day, our goal is to do a better job with quality. We've got incredible scale and also we've got a great cost profile, which is unique and so I think we have a compelling value proposition and even to the extent folks do some DIY already we're working in an environment with traffic splitting as Ed said and going all DIY is incredibly risky for a business. You have no fail-over, it's not their core expertise and I don't think it makes a lot of sense for these folks.

Keith Weiss - Morgan Stanley - Analyst

Got it, that's super helpful. Thanks a lot guys.

Operator

Thank you. Our next question comes from the line of James Breen with William Blair. Your line is now open.

James Breen - William Blair - Analyst

Thanks for taking the question. Just one, can you just give us a little more color on the OTT space and how that sort of manifests itself that you've seen so far in the numbers from a ramp-up perspective as these guys look to launch more, we'll see some more this spring and how the multi CDN strategy might work. Is there a primary and secondary. Is it sort of - does the traffic end up being split amongst two or three people. That would be a lot of help and then just as we progress through the year, a little bit of color sort of on the margin progression as well and then obviously there is the Olympics right in the summer, so how does that impact the business as we've seen in past years? Thanks.

Ed McGowan - Executive Vice President, Chief Financial Officer

Okay, a bunch of questions. Hopefully, I'll get to all of them here. So I'll start with the last one, you talked about margin progression. I made some comments earlier that Q1 you'll see the lowest operating margin for the year and then it will trend up and we guided to 30%. In terms of the multi CDN environment, I would say today most big video players and most large software distributors do have a multi CDN strategy and it can vary. In some cases, we'll do 80%, 90% and in some cases we might do 25%. Usually, what we find is as the needs for say in gaming capacity becomes a much bigger requirement, we tend to get a lot more share. We get a lot more share when we perform better, we get a lot more share as companies look to expand outside the U.S. It's a lot harder to build out capacity and drive your cost down outside the U.S. where bandwidth is more expensive and a lot of those folks will look to us to take additional share.

In terms of how these things ramp, typically, when you see a launch, you'll see a lot of promotion around initial launch, a big spike in traffic, then it sort of levels off depending on promotions and things like that and you'll see traffic kind of go up and down depending on various promotions as well as different types of content, certain shows are more popular than others etc and then as they expand outside into new markets, that also is another big jump in traffic. And I think you also asked about the Olympics, that will be in Q3 and we talked about sort of the revenue progression as you think about how we go from Q1 into the back half of the year - the back half of the year will be, you'll start to see a step-up in revenue as we get into a strong Q3 with the Olympics as well as the beginning of the election and some OTT launches and then Q4 is obviously our strongest seasonal quarter.

James Breen - William Blair - Analyst

Great, thank you.

Operator

Thank you. Our next question comes from the line of Will Power with Baird. Your line is now open.

William Power - Robert W. Baird - Analyst

Great, thanks. Yeah, just a couple of quick questions. So great to see the continued security strength. I wonder if you could give us any further breakdown as to the sources of the upside there, a 29% growth between Bot Manager, WAF, DDoS? And then as you think about the guidance for 2020, I think you said you expected to see it exceed $1 billion of revenue, I guess that leaves a lot to interpretation, but that would imply maybe something closer to low-20s, how should we think about that trajectory. Does it really drop that much or is mid-20s kind of a good place to be for growth?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, so we're seeing very strong growth in WAF, DDoS, Bot Manager and also our managed security services. The security attack landscape is moving so fast and the adversaries are so capable that more and more leading enterprises are turning to us for our services support and as we talked about on, I think it was the last call, that all of these businesses are now more than $100 million a year for us and that's what's driving the bulk of the dollar growth right now and behind that, we have the newer products that we talked about. I listed the five of them coming to - have come to market in the last year or coming to market and I don't think they'll drive a ton of the growth next year, but that's what keeps the growth going I think beyond next year. We'll see upside and if the products really take off, for example, Page Integrity, we could see some revenue that starts helping the growth by the end of the year, but those are really to keep it sustained over the longer haul. Ed, do you want to -

Ed McGowan - Executive Vice President, Chief Financial Officer

Yes, we didn't provide specific guidance, but obviously if you get to exceed over $1 billion, you are about, you know in the 20% range. I think that's probably a decent place to peg the models for now and if you recall last year, we started the year thinking we'd do in the mid-20s and ended up at 30%. So I'll just peg it into the 20% range and we'll continue to update you as we go. There's still a lot of room to go in our installed base. Only 55% of our customers today buy our security products. That's up about 7% from last year. So there is still a long way to go and only 28% of our customers are buying two or more. So a lot of room in the installed base and a lot of our new security sales of customers are being led by security first.

William Power - Robert W. Baird - Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Alex Henderson with Needham. Your line is now open.

Alex Henderson - Needham & Company - Analyst

Great, thank you very much. I was hoping to ask a little bit of a question around the pricing environment particularly as we've moved volumes out of the Monolithic Web 2.0 customers into the splintering of a lot of smaller customers, but still relative scale. Are you seeing some benefit from the relative pricing between those two. Has that movement happened? And then along the same lines, how do we think about the initial scramble among the various players to try to get share. Has pricing been more aggressive because of that, less aggressive. What are you seeing on the pricing front?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, so this is Ed, I'll take that one. I said this in the past that the pricing market - the pricing for high volume media tends to be pretty efficient and really it's volume that drives it and in terms of the pricing environment, I haven't seen people get super aggressive in terms of anything that's outside the norm when it comes to grabbing share and I would say at this point customers are really more interested in the quality than the price because the pricing right now, there's not a ton of differential between the different players at certain volume, it really just comes to performance in terms of share.

Alex Henderson - Needham & Company - Analyst

Great and this sort of follow-up on that would be obviously there is a parsing of traffic share out based on various geographies, various cities and the like. Over time, I would think that there will be a reshuffling as people either deliver good service. You guys deliver high quality service, somebody else might stumble. How long of a process does that take. Is it a quarter or two or is it much faster than that if there is quality issues?

Ed McGowan - Executive Vice President, Chief Financial Officer

Well, it depends. I mean a lot of times you can see share shifts immediately. It depends on how the customer is actually load balancing traffic. We've had instances where in the last couple of quarters in particular where some of our competitors have stumbled and had significant trouble and we'll see a big shift of traffic move over to us. In some cases that will stay for the long term. In some cases, as the company who's had trouble, fixes their trouble, it will move back, but it can be pretty quick and I can tell you that a lot of these media customers have gotten pretty sophisticated in terms of how they are looking at quality and there's a lot of different metrics that they measure and you're absolutely right, to the extent that somebody is struggling in a particular city, it could be in a particular city on a particular operator network or with a particular device type where they will shift share depending on who is performing better based on all sorts of different metrics that they're looking at.

Alex Henderson - Needham & Company - Analyst

Perfect, thank you very much.

Operator

Thank you. Our next question comes from the line of Michael Turits with Raymond James. Your line is now open.

Michael Turits - Raymond James - Analyst

Hey guys, good evening to everybody and congrats, good quarter. First, on the one-time event, can you tell us anything more about the general nature of it. I mean frequently, you talk about one-time events not having that big an impact and was it in the IP platform group because they had obviously a big bump?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, hey Michael, this is Ed. Yes, they were in the IP platform and obviously there's not a lot of customers, so I don't want to get too specific, but in general, event driven revenue sometimes can be for large scale launches or big video events etc where customers will come to us for a variety of different reasons. In some cases, it's for services or security or for capacity or for delivery. So just kind of think about it in that light that it's for specific events that we are asked to help out a couple of customers and we're happy to do it and we're always looking for that type of business, but you're right, I mean if you look at it in the grand scheme of things, $6 million on a $772 million quarter is not all that material, but certainly good business and we're always happy to take it.

Michael Turits - Raymond James - Analyst

And then I wanted to ask you about margins. Obviously, you haven't given any guidance beyond the 30% EBIT [Phonetic], but what are the puts and takes and how do you think about it strategically at that point. There are so many interesting places that you could invest that would hit the income statement especially on the security side. So how do you think strategically about that balance?

Tom Leighton - Chief Executive Officer and Co-Founder

Yes, so we haven't - we're not going to give guidance for 2021 or beyond at this point and we're focused on the 30% for this year and we always want to be as efficient as we can and it's across the board, decreasing the cost to serve traffic from our servers through better software. We got a lot of people working on that. It's being efficient with where we allocate our headcount dollars. It's efficient in terms of our procurement functions. So that's always a focus and we're going to do as well as we can do. Now, you're right, there can be trade-offs. We're making significant investments in the business. Obviously, capex to increase our scale advantage over the competition on a global basis. We're making a lot of investments in innovation, particularly in the security product area. As I mentioned before the landscape there moves so quickly and we're in great position, but we want to stay ahead with the development of new capabilities there. And so as we see opportunities, we do make investments to keep revenue growth being strong and hopefully make it better over time. And there is a balance. We want to be fiscally responsible. We proved we can do that. We've already grown our operating margin by 5 points over the last two years to three years and we'll take the step with another point this year. At the same time, it's really important for us to be investing in innovation and new products to drive future growth.

Michael Turits - Raymond James - Analyst

Thanks, Tom. Thanks, Ed.

Tom Leighton - Chief Executive Officer and Co-Founder

Thanks, Michael.

Operator

Thank you. Our next question comes from the line of Brad Zelnick with Credit Suisse. Your line is now open.

Brad Zelnick - Credit Suisse - Analyst

Thanks so much guys and congrats on a good quarter. I wanted to ask sort of a follow-up to Alex Henderson's question, but really more from a different perspective as we see the investments that you're making in capacity. I wanted to ask more about your views on capacity in the overall market and how that's informed pricing across the industry. So as you look at capacity across the industry today and your own plans, how do you view the level of capacity available in the market compared to demand?

Ed McGowan - Executive Vice President, Chief Financial Officer

Hey, Brad, this is Ed. Yeah, that's a good question. I would say that, you know, Tom just talked about hitting a peak of 140 terabits per second today. That's becoming more of a norm. It seems that on Tuesday's tends to be the day that you see lots of software and gaming releases and it's more and more players now are having much, much bigger needs in terms of these big spikes in capacity and our day-to-day traffic continues to rise. We've talked about that Sunday phenomenon. I would say that our customers certainly are getting a lot more nervous about capacity and talking to us way in advance of these whether it's a new launch or going into a new geography and certainly when they're doing new games, picking up the phone and talking to us about the concern about capacity. You've got folks spending hundreds of millions of dollars on rights for sporting events and hitting new peaks every year. So it is becoming a bit of a premium here. Now, does it translate into per gigabyte pricing? Not always, no, but in some cases, you can get capacity reservation fees where you can guarantee somebody a block of capacity and customers are in some cases willing to pay for that.

Brad Zelnick - Credit Suisse - Analyst

Excellent, thanks so much. And if I could just follow-up with one on security. Any color that you can offer on your success selling security outside of your existing customer base and perhaps if you can touch on the impact that your carrier partners are having on the security business this quarter and any insight that you might have to what you're expecting out of them in 2020? Thanks so much.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, obviously, most of our security revenue, you know, as we talked about products like WAF and Bot Manager, which tend to be sold to our traditional base. DDoS prevention, particularly the Prolexic capabilities can go more broadly. Anybody operating a data center that has critical capabilities and that's connected, they have to worry about DDoS attacks and so we do pick up an expanded base there. I think going forward, the enterprise capabilities, you know, the Secure Web Gateway, Multi-Factor Authentication, Enterprise Defender, that brings us into a whole new scope of potential customers and verticals that we don't service a lot today and that's one reason we're really excited about the enterprise security business as a component. You mentioned the carrier side. We do have great relationships as I probably know with the world's major carriers, pretty much all of them and we have developed security products that we make available to them on a white-label basis and that's where they would then go and attack the small and medium business market. We talked about last time on the call, our SPS service, which is a version of sort of a lower end of our enterprise security, Enterprise Threat Protector solution, but the carriers sell it under their own brand and they go wide with it and that's a great model for us. We don't even touch the customer there, but it generates growing revenue. So we do work with the carriers closely around our security solutions, some of them also resell our regular enterprise class solutions as well.

Ed McGowan - Executive Vice President, Chief Financial Officer

And just to add on, Brad, you asked about - Brad just on the impact for the quarter, there is one thing just to highlight that we did. Similar to last year, we had some license pull-ins from Q1, about $3 million or $4 million of security license sales to the carriers that we were expecting to hit in Q1 that hit in Q4. So just keep that in mind as you're modeling out the security business in Q1.

Brad Zelnick - Credit Suisse - Analyst

Thanks so much. Have a great night guys.

Ed McGowan - Executive Vice President, Chief Financial Officer

Thank you, Brad.

Operator

Thank you. Our next question comes from the line of Heather Bellini with Goldman Sachs. Your line is now open.

Caroline - Goldman Sachs - Analyst

Hi, this is Caroline [Phonetic] on for Heather. So given your acquisitions of Janrain and Kryptco, do you guys feel like you have a complete product set to be competitive in the identity and zero trust market and who do you typically compete against in those markets?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, I think we do, and in fact we've been named as the leader there. You look at the Forrester Magic Quadrant and as I mentioned in the prepared remarks, the leader in our Zero Trust strategy. So I think we're really excited about it and it is not just Janrain and Kryptco but now Secure Web Gateway being added to Enterprise Threat Protector, Enterprise Application Access, which take if you out of the world where you're getting network layer access, which is leading to so many of the data breaches and now access is being controlled at the app layer and once it's a customer is using that and we can actually apply our services like Kona Site Defender to scrub all the traffic from quote unquote trusted devices that are internal to make sure they're not spreading malware because it's so easy to get malware onto a device, you don't want it to spread within an enterprise and you want to make sure that the enterprise isn't ex-filtrating sensitive data to bot nets and those are the capabilities we bring to market now with Enterprise Defender and I think Janrain and Kryptco add to that and make it even stronger.

Caroline - Goldman Sachs - Analyst

Got it. That's helpful and then just really quickly on the Internet Platform customers, could you remind us of who the big Internet platform customers are that might tend to drive some upside surprise and then how should we think about that revenue line trending going forward like should be expect it to be growing positively year-over-year versus in prior years where it was declining?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, So this is Ed, I'll take the question. So in terms of the way to think about the model going forward obviously with these customers, there's six of them and we have renewals from time to time, so I would sort of model that out at about $40 million a quarter roughly. We will be looking for upside obviously as we go, but that's probably a decent place to put a mark in the sand and in terms of the customers, the giant Internet platforms, its Apple, Microsoft, Google, Facebook, Amazon, and Netflix is that group of customers.

Caroline - Goldman Sachs - Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Tim Horan with Oppenheimer. Your line is now open.

Timothy Horan - Oppenheimer - Analyst

Thanks guys. Tom, its kind of interesting how you have such peaks in utilization of the network on Sunday's and Tuesday's and different days of the week. Is there ways to kind of smooth that utilization out because essentially it's almost zero marginal cost if the network is there and you're not using it all that much and I guess with some of these new products that you have on enterprise and security today, do they leverage the network in unique ways so that you can have unique products and services versus anyone out there? Thanks.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah. So it's really two questions there and the second one on how does security mesh with the platform in getting leverage. That's a great question because we get fantastic leverage of our edge platform with security. The same servers and equipment and bandwidth and colo that's used to deliver these fabulous amounts of traffic, that same infrastructure and expense is used to absorb these gigantic attacks and Akamai is unique in being able to absorb and defend against these giant attacks and that's because we have fabulous amounts of capacity. So we get great financial leverage and infrastructure leverage with our edge network and also the edge is really important as we've talked about for delivering traffic. If you're not at the edge, you don't get access to the bandwidth that you need to give high performance delivery of video or software and being at the edges where you need to be to absorb all the attack traffic right as it is coming on to the Internet. If you wait and try to do it at the data center, you're going to get overwhelmed and it doesn't work. So really strong leverage there.

Now in terms of the network peaks. You know, it's not wildly different. I look at it now and you look at our traffic charts and the minimum at night on the least day of the week is sort of what the peak was across the entire platform a couple of years ago. So it's not huge differences in the peaks and the troughs and you can never make it totally flat because it's our customers that are driving that and when they want to distribute a new game and they want everybody to get it quick or there is a live event or you've got people home at night watching their OTT, well, we got to supply the capacity for that. So I don't think you'll ever see a world where it's exactly the same amount of traffic every hour of the day or every day of the week, but we're in pretty good shape there when you look at the traffic plots.

Timothy Horan - Oppenheimer - Analyst

Great and how unique do you think your infrastructure still is at this point, I mean there's lot of people building CDNs and say they have CDNs, a lot of the hyperscalers are building out CDNs. Just any thoughts on what you're seeing out there?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, we are very unique and you can see it in so many ways. Part of the uniqueness is that we really are an edge platform. Now these days edge has become a buzzword and so everybody says they're an edge network, it's just not true and the way you can measure that is how many distinct locations do they have servers and we're in 4,000 places, we're in a 1,000 different cities, we're in over 1,500 networks. Nobody gets anywhere close to that. And so that's one way we're unique. You can also see it in the scale of our business, you know, the traffic levels that we're serving, you can see it in the security business, you know who's out there with our kind of security revenue in a real cloud service. You can't find really anything close to that and it's because again of the edge platform and all of the technology we built on top of it. Now, you're right, there is a lot of CDNs, more and more, there's dozens of CDNs around the world, but they are tiny in comparison in terms of what they can do and I think you have to look beyond the marketing and the buzzwords to see what are they really doing, what are they really capable of, where are their servers really located and also take a hard look at their financials. Are they profitable or are they trying to buy some revenue? Do they have a scalable model, you know, that some day really is going to be profitable and I think it really is important to take a close look because there's just a lot of hype and a lot of buzz and some big IPOs and it's not real. We are unique.

Timothy Horan - Oppenheimer - Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Colby Synesael with Cowen and Company. Your line is now open.

Michael - Cowen and Company - Analyst

Hi, this is Michael [Phonetic] on for Colby. How should we be thinking about the level of M&A you could do while still being able to achieve your 30% operating margin target? Thank you.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, our plan is to achieve 30% this year and we're always looking for good acquisitions that can help us provide more value to our customers and to grow revenue and of course we're very disciplined buyers. So it's not that we're doing a lot of deals and we are very careful before we do larger deals and as we look at the year ahead, we expect to do some deals and we expect to hit 30% operating margins.

Michael - Cowen and Company - Analyst

Perfect, thank you.

Operator

Thank you. Our next question comes from the line of Brandon Nispel with KeyBanc. Your line is now open.

Brandon Nispel - KeyBanc Capital Markets - Analyst

Great. Thank you for taking the question. One for Ed and one for Tom. I think Ed what are really the puts and takes in your guidance for 2020. Does it specifically embed that you capture a certain percentage of traffic from new OTT services and then maybe for Tom along those lines, how are you going to measure the company's success in or what seems to be a growing OTT market? Thanks.

Ed McGowan - Executive Vice President, Chief Financial Officer

The first one. So we included in our guidance that we will participate in a lot of the OTT services that are coming to market and some that are expanding. It's really hard to call how successful these will be. I mean we have conversations with the customers. We know what their plans are. We make sure we build our capacity to be able to gain or capture as much of the traffic that we can, but it really does come down to end consumer demand, it comes down to hours watched, how active the subscribers are, comes down to bit rate. So really hard to tell, but we've got some models from the past that we use and try to leverage, but you really don't know until you get a few months under your belt exactly how big and successful these will be, but we do the best we can to try to bake in an assumption for a good level of success.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah and to your second question, obviously, you measure success in terms of revenue, margin, and profit and the growth of those metrics and at a different level and strategically we measure it in terms of share, scale, performance, and reliability and our goal is to grow our share, have even more massive scale, to be - continue our reliability. I think already today we're the go-to-player if you ask any of the big OTT guys and we want to grow that further and we are making investments and you see it in the capex. For example, you don't see it as easily in terms of the opex and the salaries of the people that are working on making the performance even better and the reliability even better because we are making the bet that OTT usage is going to grow a lot over the next several years and as that happens, we want to capture a lot of that on Akamai and to do it profitably. We worry a lot about cost, making our capex be a lot more cost efficient to run, so we get a lot more bits per second out of each dollar of CPU. So, strategically it's about increasing our capacity, reliability, scale, and share with the goal of generating more revenue, profit, and of course, margins.

Brandon Nispel - KeyBanc Capital Markets - Analyst

If I could just follow-up on Ed's comments. Ed, it sounds like you are definitely including traffic from some new OTT services. Does your expectation include that you capture what would be your typical video traffic share in the market or something more or less than that? Thanks.

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, I think I would say it's the typical shares that we're expecting at this point. Obviously, we're going to do our best to get as much as we can, but in terms of modeling perspective, you just put in what you think is a normal share based on the various customers.

Brandon Nispel - KeyBanc Capital Markets - Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Rishi Jaluria with D.A. Davidson. Your line is now open.

Rishi Jaluria - D.A. Davidson - Analyst

Hey, guys. Thank you so much for taking my questions. Quick ones, one for Tom, one for Ed. Some on the - just wanted to maybe get your perspective Janrain's about a year since you closed the acquisition, wanted to get a sense for how it's performed relative to your expectations and how you're thinking about that product as a driver within your security business and just some questions on margins, wanted to understand, you clearly saw a lot of strength in OTT and internationally wanted to understand what the maybe gross margin implications of both of those are as they become an increasing mix shift? Thanks.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, this is Tom, I'll take the first one. Yeah, we made our revenue plan on Janrain this year. We're doing well with the integration. I think as we look forward, we're excited about the potential for helping major enterprises comply with the increasing and more diverse regulations that are being passed. A lot of our customers do business across many states and countries and it's harder and harder for them with largely their homegrown solutions to keep up with compliance. Now that's a new industry really and so that will take some time to develop, but I think has exciting potential for the future. And Ed, you want to take the margin?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yes, sure. So in terms of obviously, the OTT media business is a lower margin than say our security business. So as the mix shifts, you can get a slight movement. I think we've talked about being down about 1 point year-on-year, but I think it's really more in the round [Phonetic] and then in terms of International, one of the things that we did several years ago that was really smart as we made a significant investment in our carrier relationships and Tom talked about being in thousands of locations and thousands of cities around the world, by having so much traffic, we feel like we provide a lot of value to the carriers. So we get generally very favorable economics in some of the hard to reach places that tend to be really expensive, so the margin internationally in most places is pretty decent for us. So as you again, just the way to think about it is your media business is going to be slightly lower on the gross margin line, your security business is going to offset that.

Rishi Jaluria - D.A. Davidson - Analyst

Great. That's helpful. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Lee Krowl with B. Riley FBR. Your line is now open.

Lee Krowl - B. Riley FBR - Analyst

Great, thanks for taking my questions and hats off on the good execution. Two quick questions, just from a multi CDN approach, geographically speaking with the roll out of some of these OTT streaming launches, just given your guys are scale relative to your competitors, do you kind of anticipate that with your scale you could perhaps garner more share as some of these services go internationally just based on your ability to execute and provide capacity where perhaps your peers cannot?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, that is the plan and that's what we've been talking about is to leverage our massive edge platform that exists all around the world. We're in a 1,000 different cities and several of these OTT businesses are global in nature and so it is our goal to leverage the scale and the performance and our reliability that's established there to gain share.

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, just to add a little bit here. Like I said, we spend a lot of time investing with our relationships with the carriers around the world and there are some really challenging places to build out capacity. Latin America in particular is one that's very challenging and we see outsized share in countries like The Philippines, Indonesia, across the Middle East and India. Again, areas that are a little bit harder for some of our competitors to get to and also it requires an investment in the people to be able to go out, establish those relationships and build out the capacity. So I think we're very smart in our approach in terms of our investments. We're continuing to invest and a lot of what we're doing with our capex is we're building more and more capacity outside the U.S.

Lee Krowl - B. Riley FBR - Analyst

Got it. And then just a second question more of a housekeeping question, but are there any anticipated major renewals in 2020?

Ed McGowan - Executive Vice President, Chief Financial Officer

So there's always going to be lots of renewals throughout the year and - what I did last quarter, I'll do this - last year, excuse me, I'll do again this year is I'll call out if there is anything going into a quarter that needs to be highlighted, but we factored that into our guide.

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, one of the nice things is that we're much more diverse in our customer base now. We don't have customers that account for 10% or more of our revenue. In fact, you take the giants there and they're all like 2% or 3% at most. So there is much less impact to our business now if a giant customer has a major repricing.

Tom Barth - Head of Investor Relations

Operator, we have time for one more question.

Operator

Our next question comes from the line of Jeff Van Rhee with Craig-Hallum. Your line is now open.

Jeff Van Rhee - Craig-Hallum - Analyst

Great. Just made it. Two quick ones from me. First on the network utilization, how has the target utilization rate changed over the last three years with respect to the overall network utilization and I think of that particularly in light of multi CDN or switching strategies becoming easier. And then the second question, shift gears over to sales if you would and I'm just curious going into '20, how did you tweak the comp or sales structure approaches, namely what particular behaviors - new behaviors did you try to incent. Looking for what changed there?

Tom Leighton - Chief Executive Officer and Co-Founder

Yeah, I don't know that there is a fundamental change in network utilization strategy. I think there is - we do as Ed mentioned in many cases get reservation fees. The capacity on the Akamai platform is enormous, but it's not infinite and we want customers to understand that if they may need to have large amounts of capacity, we need to have that conversation upfront and plan for it and it doesn't - we're not just going to sit and not have traffic and all of a sudden take it because somebody else falls over and so I think with almost all the major customers out there, we have a very strong relationship. We have a large fraction of the traffic and we have an understanding of what more we might take in the event they have problems with other vendors, if they're doing traffic splitting. Ed, do you want to talk about sales?

Ed McGowan - Executive Vice President, Chief Financial Officer

Yeah, on the sales compensation, there's really no major change this year. We had talked about two years ago, we had made some big changes in the media world to have them focus on gaining share and selling security, but in terms of the tweaks we're making to the comp plans this year, there's nothing really major to call out.

Jeff Van Rhee - Craig-Hallum - Analyst

Okay. Thanks for taking my question.

Tom Barth - Head of Investor Relations

Thank you, Jeff. In closing, we will be presenting at several investor conferences and events throughout the rest of the first quarter. Details of these can be found on the Investor Relations section of akamai.com. We want to thank you for joining us and have a wonderful evening.

Operator

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AKAMAI TECHNOLOGIES INC

Q4 2019

Earnings Transcript

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