Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-20) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP — Clean opinion
One-line verdict: Akamai earns an F grade with two fails and three watch items. Cash of $1.2B covers only 21% of total debt of $5.7B, and goodwill plus intangibles at $3.8B represent 77% of equity. Adding three watch items — AR growth at 13.6% versus revenue growth of 5.4%, Debt/EBITDA at 4.2x, and soft assets growing 40.5% versus revenue of 5.4% — paints a picture of a company leveraging up to fund an aggressive expansion into cloud computing while its legacy CDN delivery business declines. The M-Score at -2.78 is safely below the threshold, and CFFO/NI at 3.36 shows strong cash conversion, but the balance sheet strain is real.
| Metric | Result |
|---|---|
| Red Flags | **2** (cash covers only 21% of debt, goodwill+intangibles at 77% of equity) |
| Watch Items | **3** (AR outpacing revenue, Debt/EBITDA 4.2x, soft asset growth) |
| Checks Completed | **17/18** |
| Beneish M-Score | **-2.78** (safe zone) |
| Auditor | PricewaterhouseCoopers LLP — Unqualified opinion |
CDN Pioneer Pivoting to Security and Cloud
Akamai operates one of the world's largest distributed edge platforms. The company is pivoting from its legacy content delivery network (CDN) business toward security and cloud computing.
From the 10-K: "As AI is a major focus of corporate initiatives for enterprises across the globe, we are committed to helping our customers seize on its power and potential. We provide cloud computing infrastructure that they can use to build low-latency, AI-powered applications; cybersecurity solutions, powered by adaptive AI and automation."
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $3.6B | $3.8B | $4.0B | $4.2B | +5% |
| Net Income | $524M | $548M | $505M | $452M | -10% |
| Gross Margin | 61.7% | 60.4% | 59.4% | 58.9% | Declining |
| Net Margin | 14.5% | 14.4% | 12.7% | 10.7% | Declining |
| ROE | 12.0% | 11.9% | 10.4% | 9.1% | Declining |
Revenue grew 5% but net income declined 10%, reflecting rising costs from the cloud computing build-out. Gross margin has compressed nearly 3 percentage points over four years.
Revenue by Solution Category
From the 10-K:
| Category | FY2025 | FY2024 | Growth |
|---|---|---|---|
| Security | $2,243M | $2,043M | +10% |
| Delivery | $1,257M | $1,318M | -5% |
| Cloud Computing | $708M | $630M | +12% |
| **Total** | **$4,208M** | **$3,991M** | **+5%** |
Security is now the largest revenue category at 53% of total revenue, growing 10%. Delivery — the legacy CDN business — declined 5%, continuing a multi-year shrinkage. Cloud computing, built on the 2022 Linode acquisition, grew 12% but remains the smallest segment.
The Delivery Decline and Margin Pressure
From the 10-K: "Co-location costs are a significant portion of our cost of revenue. As we continue to build out our new compute locations to provide us with the ability to scale our platform, we have experienced a significant increase in our co-location costs due to the market dynamics driven by the hyperscalers."
Cash Flow: Strong Conversion but Declining Profits
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $1,348M | $1,519M | $1,519M |
| Free Cash Flow | $618M | $834M | $699M |
| CFFO / Net Income | 2.46 | 3.01 | 3.36 |
The extremely high CFFO/NI ratio (3.36) reflects the large gap between net income and operating cash flow driven by substantial non-cash charges. From the 10-K: non-cash reconciling items of $1.24B include depreciation, amortization, and stock-based compensation that add back to cash flow.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | Pass | DSO 50 days, change +4 days YoY |
| A2 | AR vs Revenue | Watch | AR growth 13.6% exceeds revenue growth 5.4% |
| A3 | Revenue vs CFFO | Pass | Revenue +5.4%, CFFO flat. Cash follows revenue |
A2: AR growth at 13.6% significantly outpacing revenue growth of 5.4%. DSO rose from 46 to 50 days. This could indicate customers taking longer to pay as Akamai expands into new cloud computing contracts with different billing terms, or it could signal aggressive revenue recognition on longer-term contracts.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory | Pass | No material inventory (services/software business) |
| B2 | CapEx | Pass | CapEx growth 19.6% vs revenue 5.4%. Normal |
| B3 | SG&A Ratio | Pass | SG&A/Gross Profit = 46.5%. Normal |
| B4 | Gross Margin | Pass | Gross margin 58.9%, -0.4pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs NI | Pass | CFFO/NI = 3.36. Profits backed by cash |
| C2 | FCF | Pass | FCF $699M, FCF/NI = 1.55 |
| C3 | Accruals | Pass | Accruals ratio = -9.3%. Low |
| C4 | Cash vs Debt | Fail | Cash $1.2B covers only 21% of debt $5.7B |
C4: Cash of $1.2B covers only 21% of $5.7B in total debt. Debt has nearly doubled from $3.2B in FY2022 to $5.7B. From the 10-K: Akamai entered into credit agreements including a "$500 million revolving credit facility...amended in May 2025 to increase the aggregate revolving commitments from $500.0 million to $1.0 billion" plus an additional "$150 million revolving credit facility" in January 2025. The company also carries convertible notes. This leverage funds the cloud infrastructure build-out, but the 79% gap between cash and debt is substantial.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Fail | $3.8B = 77% of equity |
| D2 | Leverage | Watch | Debt/EBITDA = 4.2x. Financial stress |
| D3 | Soft Asset Growth | Watch | Other assets grew 40.5% vs revenue 5.4% |
| D4 | Impairment | N/A | No write-off data |
D1: Goodwill of $3.2B and intangibles of $615M total $3.8B, 77% of equity. The goodwill is primarily from the Linode acquisition and prior security acquisitions. If the cloud computing pivot fails to achieve scale, a significant impairment risk exists.
D2: Debt/EBITDA at 4.2x signals financial stress. Interest coverage at 20.4x is still comfortable, but the leverage ratio itself is elevated for a technology company. Combined with the cash-to-debt shortfall, this creates balance sheet vulnerability.
D3: Soft assets grew 40.5% vs revenue of 5.4%. This disproportionate growth in other balance sheet items warrants monitoring.
M&A Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Post-Acquisition FCF | Pass | FCF after acquisitions positive |
| E2 | Goodwill Surge | Pass | Goodwill+Intangibles change -1% YoY. Normal |
Beneish M-Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | M-Score | Pass | -2.78 (< -2.22). Safe zone |
Key Risks from Item 1A
1. Legacy CDN decline. Delivery revenue fell 5% and has been declining for years as hyperscalers build competing CDN capabilities. This trend is structural.
2. Cloud computing competitive intensity. From the 10-K: "The market for our solutions is intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service innovations." Akamai competes against AWS, Azure, and GCP — vastly larger competitors.
3. Linode integration risk. From the 10-K: The company acknowledges risks from the Linode acquisition including "any harms that may arise from abuse of our cloud computing products. If...our cloud computing products are perceived to be less reliable than our competitors, it could result in loss of customers."
Altman Z-Score and F-Score
| Model | Score | Interpretation |
|---|---|---|
| Altman Z-Score | **2.90** | Border of safe zone (>2.99 safe) |
| F-Score (Dechow) | **0.85** | Low fraud probability (0.32%) |
The Z-Score at 2.90 sits right at the boundary between grey and safe zones, reflecting the elevated leverage. F-Score fraud probability is very low.
Summary
| # | Check | Result |
|---|---|---|
| A1-A3 | Revenue Quality | Pass-Watch-Pass |
| B1-B4 | Expense Quality | Pass-Pass-Pass-Pass |
| C1-C4 | Cash Flow Quality | Pass-Pass-Pass-Fail |
| D1-D4 | Balance Sheet | Fail-Watch-Watch-N/A |
| E1-E2 | M&A Risk | Pass-Pass |
| F1 | Beneish M-Score | Pass |
Grade: F. Balance sheet strain from the cloud pivot, declining legacy business, and three watch items push Akamai to the lowest grade.
Akamai's story is one of strategic transformation under financial pressure:
The F grade reflects balance sheet risk, not earnings quality fraud. The critical question is whether Akamai's cloud computing revenue ($708M, +12%) can scale fast enough to offset the declining delivery business and service the growing debt load.
**Disclaimer**: This report is based on Akamai's FY2025 10-K (SEC EDGAR) and public financial data. This is NOT investment advice.
Data: SEC EDGAR 10-K (Filed 2026-02-20) + Yahoo Finance
Auditor: PricewaterhouseCoopers LLP (Unqualified opinion)