F5 Networks Delivers Another Healthy Quarter Amid Soft Macro Conditions

FFIV: F5 logo

Despite the challenging macroeconomic environment, F5 Networks (NASDAQ:FFIV) was able to post yet another quarter of solid earnings with a 16% y-o-y increase in net income. Led by strong single digit sequential growth in service revenues and a marginal increase in product revenues, F5 registered a y-o-y increase of 21% and a sequential increase of 4% in revenues. While security offerings remain a key driver, strong VIPRION sales and increased adoption of TMOS version 11.0 contributed to continued growth this quarter.

The company remains optimistic of its performance for the rest of the year despite continued economic headwinds and a cautious spending environment. It, however, maintains a conservative target of $360 million in revenues for Q4 2012. We believe new product developments will further expand F5’s market, keeping it well-equipped to take advantage of the favorable market trends.

Here are certain trends that we think could have a positive impact on the company, going forward.

Relevant Articles
  1. Is F5 Stock A Better Pick Over Abercrombie After Its Recent 20% Rise?
  2. Down 15% This Year Is Verisign Stock A Better Pick Over F5 Networks?
  3. Should You Pick F5 Stock At $185 After Q1 Beat?
  4. After A 13% Fall This Year How Does Ciena Compare With F5 Stock?
  5. Should You Pick F5 Stock Over Teleflex?
  6. Will F5 (FFIV) Stock Recover To Its Pre-Inflation Shock Level of $250?

See our complete analysis for F5 Networks here

Virtualized Data Centers

As organizations transform their own data centers, they are increasingly turning to external, third-party cloud providers for services and storage to lower their capital and operating costs. To accommodate the dynamic needs of their clients, cloud providers in turn are building large virtualized data centers to host a constantly changing mix of on-demand resources. F5 benefits from this trend in two ways:

1) Cloud providers deploy F5 products within their data centers, and

2) Customers deploy F5′s products to switch traffic quickly and easily between their own internal resources and the cloud.

Research firm Forrester projects the global market for cloud computing to increase from $41 billion in 2011 to $241 billion by 2020. [1] We believe that F5 Networks, with a 25% application delivery network market share could significantly leverage the growth. We estimate its market share to rise to 38% by the end of our forecast period.

Growing Security Concerns

With the explosion of data and processing required online, security has become a major concern for most enterprises and, thus, this is one segment which is bound to witness tremendous growth in coming years. With its Big-IP 11.1 software passing the ISCA tests for network firewalls, F5 shook up the firewall market with its entry in February 2012.

Apart from improving products and major enhancements for private and public cloud environments, the company has also come out with innovative programs to boost its security solutions sales. F5 expects to launch its TMOS upgrade code-named “Solar” which targets corporate customers and telecom service providers and also focuses on protecting web applications from Internet attacks, which will set it apart from network-focused security providers.

Mobile Traffic Growth Will Lead To Increase In Mobile Application Delivery

The use of mobile devices is slated to witness exponential growth in coming years. As the number of remote workers and mobile customers increase, there is a growing enterprise need to support all its end-users from a device standpoint. Thus,  mobile application delivery support is the next logical step for most application delivery controller vendors.

In May, F5 announced updates to application delivery optimization that makes BIG-IP the first ADC on the market to support Google’s (NASDAQ:GOOG) SPDY protocol. F5’s application delivery optimization offering provides a better mobile user experience, optimizing image delivery and rendering of web pages in a much quicker environment.

We believe that a robust product pipeline will help the company expand in new markets and maintain its positive, long-term outlook.

We are in the process of updating our price estimate of $129 for F5 Networks.

Understand How a Company’s Products Impact its Stock Price at Trefis

F5 Networks Reaches $128 With Shift To Cloud

by Trefis Team

F5 Networks
Rate | votes | Share

F5 Networks (NASDAQ:FFIV), the application delivery heavyweight, helps companies simplify the management of their data center operations and delivery of services across diverse data center resources. It has pioneered the load-balancing technology that distributes internet traffic evenly across multiple servers, making them look like a single device. Optimizing growth in the application delivery network market, F5 has almost doubled its revenues and profits in the last 5 years.

The stock has lost around 20% of its market value in the last month. However, with a robust pipeline of future sale opportunities, we believe the company’s leadership to be as strong as its ever been. Here, we analyze certain prominent trends that shape the future prospects and in turn support our valuation of $128 for the company, which stands at a premium of 20% to the current market price.

See our complete analysis for F5 Networks here

Shift To Cloud Based Services and Storage

  1. More Predictions on the Huge Growth of Cloud Computing, Wall Street Journal, April 21, 2011 []