F5 Networks In Growth Purgatory
Stephen Simpson, CFA
Stephen Simpson, CFA
Absent Product Revenue Growth, What Drives F5 Networks?
Stephen Simpson, CFA
Stephen Simpson, CFA
F5 Shares Spin Out On Weakness In Product Sales
Stephen Simpson, CFA
Stephen Simpson, CFA
Dec. 9, 2015, 9:19 AM
- Believing the company's macro outlook remains shaky and that a pending hardware refresh cycle is unlikely to bring a return to material revenue growth, Nomura's Jeff Kvaal has downgraded F5 (NASDAQ:FFIV) to Reduce, and cut his target by $20 to $90.
- Shares have dropped to $100.20 premarket. William Blair and JMP downgraded F5 last month following its analyst day, with each citing a lack of near-term catalysts. JMP also raised concerns about the impact of public cloud adoption.
- F5 now trades for 14x an FY16 (ends Sep. '16) EPS consensus of $7.04; the FY16 revenue growth consensus is 7%. During the company's FQ4 call (transcript), new CEO Manny Rivelo suggested a product refresh will have a bigger impact on the second half of FY16
Nov. 13, 2015, 10:00 AM
- William Blair and JMP have each downgraded F5 (NASDAQ:FFIV) to Market Perform following yesterday's analyst day (webcast). Shares have made new 52-week lows.
- William Blair's Jason Ader considers further downside limited, but also considers it hard to find a near-term catalyst. "[T]he stock is stuck in a purgatorial state between growth and value, and we believe management is overly optimistic about the business’s true growth prospects amid the status quo - a phenomenon that we believe is contributing to the recent spate of executive departures.”
- Likewise, JMP's Erik Suppiger sees limited catalysts, save for "an upgrade cycle that will be one-time in nature," and isn't expected until the second half of FY16 (ends Sep. '16). He adds the adoption of public cloud platforms such as Amazon Web Services and Microsoft Azure is "serving as a net headwind to F5, as enterprises migrate more workloads to these providers, potentially reducing the total market opportunity for F5.”
- F5 sold off hard last months after providing an FQ4 revenue miss and soft FQ1 guidance. On the earnings call (transcript), the guidance was blamed on seasonality, along with caution related to budget uncertainty stemming from forex and "lingering macro issues." When asked about cloud-related pressure, the company insisted cloud adoption is an opportunity, as F5's ADCs enable app/service portability and enforce consistent security and access policies for hybrid cloud deployments and enterprises using multiple public clouds.
- Today's selloff comes as Cisco falls due to the light FQ2 guidance it provided with an FQ1 beat. Cisco noted enterprise orders were a weak spot.
Oct. 29, 2015, 9:13 AM| Oct. 29, 2015, 9:13 AM
Oct. 28, 2015, 5:12 PM
- In addition to missing FQ4 revenue estimates (while beating on EPS), F5 (NASDAQ:FFIV) is guiding for FQ1 revenue of $480M-$490M and EPS of $1.58-$1.61, below a consensus of $507.8M and $1.71.
- Latin America, Canada, and Japan were weak in FQ4; the U.S. and EMEA were stronger. Product revenue (drives future services revenue) rose 1% Y/Y to $257.7M; services revenue rose 16% to $143.6M. GAAP operating expenses rose 14% to $269M, and $150M was spent on buybacks (boosted EPS).
- Shares have fallen to $110.25 after hours. The figures could spark fresh concerns about the growth outlook for F5's core application delivery controller (ADC) market; F5 has been relying heavily on security hardware/software sales to grow its top line.
- FQ4 results, PR
Oct. 28, 2015, 4:07 PM
- F5 Networks (NASDAQ:FFIV): FQ4 EPS of $1.84 beats by $0.10.
- Revenue of $501.30M (+7.7% Y/Y) misses by $5.22M.
- Shares -5.22%.
Oct. 27, 2015, 5:35 PM
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Oct. 6, 2015, 9:16 AM
- Believing consensus estimates are too high and that the company is likely to cut guidance over the next 6 months, Citi's Jim Suva has launched coverage on F5 (NASDAQ:FFIV) with a Sell rating and $105 target.
- Suva notes he's the only analyst with a bearish rating on F5. He has also started Cisco at Buy, and Juniper at Neutral.
- F5 has fallen to $116.22 premarket. Suva's coverage comes as smaller F5 rival Radware tumbles in response to a Q3 warning. F5's FQ4 (calendar Q3) report arrives on Oct. 28.
- Yesterday: F5 partners with FireEye
Oct. 6, 2015, 9:15 AM
Oct. 5, 2015, 11:11 AM
- Citing fears about increased competition, Piper's Andrew Nowinski has downgraded FireEye (NASDAQ:FEYE) to Neutral, and cut his target by $23 to $37.
- Nowinski: "Our downgrade is primarily due to increasing competition, though we are also concerned with conflict within the channel and recent executive turnover." His target translates into a 6.3x 2016E EV/sales ratio.
- Palo Alto Networks, Cisco, and others have rolled out threat-prevention products and services over the last year that take aim at FireEye. The company is still generally seen as a technology leader with regards to solutions protecting networks and endpoints from malware and zero-day threats, and in probing attacks that have already occurred.
- Separately, FireEye has announced it's partnering with F5 (FFIV +1.8%), the top player in the application delivery controller (ADC) market and also a security hardware vendor, to provide integrated solutions.
- The joint solutions combine application delivery and content security functions, including "network segmentation and policy management, protocol conformance, DDoS mitigation, SSL inspection, advanced threat protection, intrusion prevention, threat intelligence, forensics, and analytics." FireEye/F5 also promise to provide better visibility into encrypted traffic, and to leverage the health-monitoring and load-balancing features of F5's BIG-IP platform.
- FireEye announced a security services partnership with HP earlier this year, as well as a threat intelligence-sharing partnership with firewall/security appliance vendor Check Point.
Sep. 22, 2015, 11:57 AM
- "We believe F5 (FFIV -3.1%) is experiencing slowing growth in its core ADC product resulting from factors both cyclical and secular," says analyst Ryan Hutchinson, downgrading to Neutral from Buy. He takes note of the conclusion of the Cisco ACE replacement, and the long-term revenue headwind from virtual appliance sales.
- Then there's recent market share data from Gartner showing the broader ADC market growing 4.7-6.5% per year - F5, says Hutchinson, has become a "share donor," losing 130 bps of revenue share between Q1 and Q2 this year, and 60 bps Y/Y.
Aug. 10, 2015, 6:04 PM
- John DiLullo, formerly the sales chief of enterprise Wi-Fi hardware vendor Aruba Networks (recently acquired by HP), has been named F5's (NASDAQ:FFIV) new head of worldwide sales, effective Aug. 31.
- F5 announced during its FQ3 earnings call sales chief Dave Feringa would be stepping down. The shakeup comes shortly after Manny Rivelo replaced John McAdam as CEO.
Aug. 3, 2015, 9:52 AM
- Buckingham Research has downgraded F5 (NASDAQ:FFIV) to Neutral. The firm had upgraded F5 to Buy on Jan. 22, after shares plunged on account of a revenue miss and soft guidance. F5 had risen 23% since.
- The downgrade comes 12 days after the ADC/security hardware and software vendor jumped following an FQ3 beat and strong FQ4 EPS guidance.
Jul. 23, 2015, 2:56 PM
- Application delivery controller/security hardware vendor F5 (FFIV +6.9%) beat FQ3 estimates on the back of strong software sales, and provided above-consensus FQ4 EPS guidance (revenue was in-line). With growing 100G long-haul optical deployments serving as a tailwind, optical networking hardware vendor Infinera (INFN +9.6%) beat Q2 estimates and provided strong Q3 guidance.
- Also: Optical component vendor Alliance Fiber (AFOP +16%) beat estimates and offered healthy guidance. Strong datacom component demand from cloud service providers was cited.
- A slew of telecom/networking equipment, component, and chip vendors are higher on a day the Nasdaq is down 0.4%. The list includes Infinera rival Ciena (CIEN +1.6%), F5 rival Radware (RDWR +3.3%), and Alliance Fiber peer NeoPhotonics (NPTN +4.7%). Others include Ciena acquisition target Cyan (CYNI +1.8%) and chipmakers Cavium (CAVM +3.6%), PMC-Sierra (PMCS +3%), EZchip (EZCH +2.8%), and InPhi (IPHI +3.7%).
- Broader gains for chip stocks - the Philadelphia Semi Index is up 1.7% after selling off hard yesterday - are likely helping the chipmakers. Cisco, meanwhile, is up 2.2% after striking a deal to sell its share-losing set-top unit to Technicolor.
- During F5's earnings call, new CEO Manny Rivelo stated F5 now leads the virtual (software-based) ADC market, which has sometimes been seen as a major long-term threat to its ADC hardware business, and noted the company saw a 20% Y/Y increase in its deferred revenue balance (driven by services/subscription growth) to $743M. He also disclosed sales chief Dave Feringa is stepping down on Oct. 1; his successor will be named shortly.
- On Infinera's call, CEO Tom Fallon mentioned the company has now invoiced 12 customers for its new Cloud Xpress data center interconnect platform, up from 7 three months ago. For now, long-haul optical still makes up over 90% of revenue - Cloud Xpress growth, the pending launch of a metro aggregation product, and (provided it's approved) the Transmode acquisition should change that. 3 customers accounted for over 10% of Q2 revenue.
Jul. 22, 2015, 4:14 PM
- In addition to beating FQ3 estimates, F5 (NASDAQ:FFIV) is guiding for FQ4 revenue of $500M-$510M and EPS of $1.72-$1.75 vs. a consensus of $504.7M and $1.71.
- Software (virtual ADC/add-on module) sales were a strong point, as were enterprise and U.S. federal demand. Software accounted for over a third of FQ3 product revenue.
- Key numbers: FQ3 product revenue +5% Y/Y to $248.8M; services revenue (driven by past product sales) +15% to $234.8M. GAAP operating expenses +10% to $257.8M. $150M was spent on buybacks. F5 ended FQ3 with $1.35B in cash/investments, and no debt.
- Shares have risen to $125.03 AH.
- FQ3 results, PR
Jul. 22, 2015, 4:06 PM
- F5 Networks (NASDAQ:FFIV): FQ3 EPS of $1.67 beats by $0.07.
- Revenue of $483.59M (+9.8% Y/Y) beats by $2.24M.
Jul. 21, 2015, 5:35 PM| Jul. 21, 2015, 5:35 PM | 5 Comments
F5 Networks, Inc. engages in development of software-defined application services. The firm includes marketing and sale of application delivery networking products. The company was founded on February 15, 1996 and is headquartered in Seattle, WA.
Industry: Application Software
Country: United States
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