F5 Networks (NASDAQ:FFIV) makes Internet traffic management products that improve the performance and reliability of web-based applications and businesses. This company is parked in front of a massive opportunity that is attracting a lot of attention from investors--F5's stock price has advanced nearly 30% since we wrote about it last October and more than doubled in the past three years.
Business is driven by enterprises that are increasingly shifting business processes onto the web and need those applications to operate efficiently. Network infrastructure is an area that's had booms and busts over the past decade, but tech spending in this area is definitely back in a solid uptrend now. The stock of FFIV has rebounded impressively as investors recognize F5's intriguing prospects for growth.
The broad imperative addressed by F5 is driven by two key issues. The first is the soaring amount of traffic on the Internet and corporate networks. The second is the fact that the Internet has matured beyond an entertaining novelty to become the medium for mission critical business functions and applications. This includes not only the online media and e-commerce companies who want their sites accessible and responsive, but also industries that now use intranets as well as the web for various enterprise applications like HR, supply chain management or collaboration on product design and manufacturing.
Traffic management solutions monitor and balance the load on servers and other devices by determining which server can best respond to a user request and direct it accordingly, ensuring optimum response time for users. These products also improve fault tolerance (if one server crashes, traffic is routed to the next best server) and allow geographically dispersed server architecture for better performance. Automation of provisioning and other network management tasks makes F5 products cost effective investments.
F5 is on a strong growth trajectory for both revenue and profits. Sales went from $171 million in Fiscal Year 2004 to $394 million in FY2006 (ended in September). Earnings per share went from 76 cents to $2.04 over that same period. The outlook is just as impressive, with the analyst consensus for the current fiscal year at $2.70/share in earnings and $513 million in sales, followed by $3.14/share and $631 million in FY2008.
The stock has a volatile history and this year's been no exception, so while the good news has easily outweighed the bad, it isn't for the faint of heart. F5 Networks is hardly an undiscovered diamond in the rough, either, but it is a survivor of the tech-wreck that is highly profitable and delivering very strong growth. Given the enormous market opportunity in network traffic management, it's not surprising that this stock has dramatically outperformed the broader market averages in the past few years.
FFIV 1-yr chart
Disclosure: Author has no position in FFIV.