F5 Investors Dump Shares, Despite 30% Surge in 3Q Sales

F5 Networks (FFIV), which makes networking gear that speeds up the performance of Web sites and Internet applications, Wednesday night announced sales of $132.4 million and profit of 51 cents a share in its fiscal third quarter ended June 30 — more-or-less in line with estimates from Thomson Financial, though revenue was a hair light of the consensus estimate of 132.7 million.

The company’s forecast for the fourth quarter was also in line, with revenue estimated at $142 to $144 million and profit estimated at between 53 and 55 cents a share.

F5 announced a two-for-one stock split come August, and said a buyback of shares was not imminent but might be discussed in October by the board of directors.

With sales up 32% year-over-year and profit up 25%, what’s not to like? Despite the growth, analysts voiced a couple of concerns on a conference call. One was that product sales, as opposed to revenue from supporting services, seemed to rise more slowly than in previous quarters. Chief Executive John McAdam said the company expects to see product sales pick up in the current quarter because of strong product bookings last quarter.

McAdam also said that the company’s products for securing networks have lumpy sales results quarter to quarter, and that products for speeding up connections over long-distance data lines are not as competitive as they should be. F5 competes with a gaggle of companies, including Cisco Systems (CSCO) and Riverbed (RVBD), a recent IPO.

Those weaknesses in the product line could get a boost from a forthcoming product called “Montreal,” due out by year-end, said McAdam in a phone call I had with him Wednesday evening. Montreal will increase by ten-fold the network throughput of the company’s equipment, said McAdam, and he says that that fact alone can boost sales of even the company’s slower product offerings. That’s because a faster box at the top of the product line creates an upgrade path for customers, similar to the way Sun Microsystems (SUNW) sells cheap server computers by having very powerful servers at the high-end of its offerings.

When I noted that the company has done no acquisitions this year so far, McAdam said it’s possible there are new product lines that could be created for the company by acquiring startups. But he declined to say who might be on F5’s short list.

Perhaps because F5 used to blow away estimates more than it has lately (it beat profit estimates by 14% as recently as the December quarter), or perhaps because of the stock split, investors dumped shares after hours, with the stock down about 3.36% at $84.85. Shares rose half a percent during normal trading Wednesday. The shares are up about 14% this year.

FFIV 1-yr chart: