Last month, F5 Networks (NASDAQ:FFIV) acquired Defense.Net, a provider of cloud-based security services for protecting data centers and Internet applications from Distributed Denial-of-Service (DDoS) attacks, which makes a machine or network resource unavailable to its intended users. The combined portfolio of the two companies will provide customers with the most comprehensive hybrid DDoS solution.
F5 entered the Internet firewall market in February 2012, with its BIG-IP 11.1 software passing the International Computer Security Association (ICSA) Labs test for network firewall. Since then the company has expanded its security solution portfolio with the addition of new products. It acquired Israel based Versafe Ltd., a provider of web anti-fraud, anti-phishing and anti-malware solutions in September 2013, enhancing F5’s security, access and mobile solutions. The acquisition of Defense.Net further expands F5’s portfolio of security solutions for defense against Internet-based DDoS attacks on networks, data centers and applications.
With the growth of the Internet and rapid increase in the volume of traffic accessing applications, the DDoS attacks are becoming very common as cyber criminals find new ways to amplify their attacks. With an expanded product portfolio, F5 helps ensure that critical applications and networks are protected and available under the most demanding conditions, regardless of the volume, type or source of DDoS attack. Though the acquisition is not expected to have a material impact on F5’s operating results, it helps the company by increasing its competitiveness in the fast growing security market.
Our price estimate of $109 for F5 Networks is almost in line with its current market price.
Why Security Is An Important Market For F5
There is growing demand for applications and content as subscribers now interact with a number of different types of networks (3G, 4G LTE) and protocols. Additionally, newer, feature-rich mobile devices require more connections and bandwidth per subscriber. With increasing network complexity, reducing security risk is an important criteria for enterprises. Over the years, data theft technology has become more sophisticated and the global cyber-crime market is currently sized at $104 billion. IDC estimates that companies around the world will spend $491 billion in 2014 for fixes and recovery from data breaches and malware, $127 billion in dealing with security issues and $364 billion dealing with data breaches.
The security market is highly competitive with players such as Cisco (NASDAQ:CSCO), McAfee, Palo Alto Networks (NYSE:PANW), etc. Despite intense competition, F5 claims to be making significant progress in the market. Last quarter, F5 saw strong sales across its securities solutions portfolio, including Application Security Manager (ASM), Access Policy Manager (APM) and Advanced Firewall Manager (AFM). It had two multimillion dollar sales wins in the quarter as F5 solutions replaced existing competitors’ solutions. Also, a Tier 1 service provider purchased F5′s AFM firewalls to replace their existing traditional data center firewalls.
With growing awareness of its security solutions in the market, F5 believes that this segment offers huge growth opportunity and expects the strong sale momentum to continue throughout fiscal 2014.
Disclosure: No positions.