F5’s Q2 ’15 Earnings Preview: 2015 To Be Another Year Of Strong Growth
F5 Networks (NASDAQ:FFIV), which specializes in Application Delivery Networking technology, is set to report its Q2 2015 earnings on April 22nd. (Fiscal years end with September.) Fiscal 2014 was a good year for the company as it reported a 17.2% and 12.2% growth in its revenue and net income, respectively. Growth in the year was driven by F5′s strength in the enterprise business, growing demand for its security products, the success of the Good, Better, Best bundles in driving million-dollar-plus deals, and broader adoption of its solutions.
F5’s Q1 2015 results and Q2 2015 guidance were a bit below analyst consensus. December quarters for the company normally display seasonality, which was reflected in consensus. Yet there was also a marked decrease in million-dollar-plus deals (compared to previous quarters), which led to a slight sequential decline in the company’s revenue. F5 experienced a larger than expected drop in million dollar plus deals in both large enterprise and Federal opportunities in the U.S. However, it firmly believes that this is more of a seasonal issue and claims to have a strong pipeline of such deals for the current quarter. Based on the strength of its current pipeline, including the return in the number of large deal opportunities and continued momentum from key drivers, F5 anticipates Q2 2015 revenue to be in the range of $465 million to $475 million, up 12% year to year, and GAAP and non-GAAP EPS between $1.07 to $1.10 and $1.48 to $1.51, respectively. [1]
F5 anticipates another year of solid growth and profitability in fiscal 2015. Assuming no material impact to the industry from broader macro issues, the company believes that growth will continue in the current fiscal year, driven by: 1) an expanding product portfolio; 2) growing customer awareness and adoption of the Synthesis architecture; and 3) partnerships with key players in the emerging SDN market.
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Our price estimate of $127 for F5 Networks is at an approximate 10% premium to the current market price. We will update our valuation after the Q2 2015 earnings release.
See our complete analysis for F5 Networks here
Security Business Continues To Be The Strongest Growth Driver
Driven by strong sales across the security solutions portfolio including ASM (Application Security Manager), APM (Application Performance Manager) and AFM (Application Firewall Manager), F5 expects to see another strong quarter for its security business in Q2 2015. The company claims to have gained some very strategic sales wins in the service provider market, as its consolidation strategy and focus on security NFC, Gi 1 services and LTE applications is resonating well with the service providers. F5 is starting to see some real momentum globally with its Gi firewall solutions and believes it can be a strong growth driver in fiscal 2015 and beyond.
F5 provides some solutions as special software only offerings, which is enabling customers to move to software-defined data centers. This has led to a growth across the entire portfolio of F5’s software module offerings, also driven by the rapidly increasing reorganization.
F5 has a host of new functionality and new products in its pipeline. It recently released a new high-end 2U platform – BIG-IP 12000, and plans to enhance its management and orchestration capabilities with BIG-IQ release 4.5 in the near future. The release will include significant enhancements to F5’s data center security product, AFM and ASM, as well as comprehensive support for the SDN ecosystem.
The ‘Good, Better, Best’ pricing model, introduced in November 2013 to help customers maximize their value of enterprise application delivery, continued to gain momentum in Q1 2015 with strong customer adoption in the Best category.
Cisco ACE Replacement Opportunity To Continue in 2015
In 2012, rival firm Cisco announced its decision to exit the ADC market after losing more than 50% of its market share to F5 and Citrix. F5 has scored big product wins by replacing some of Cisco ACE products in large customer accounts since then. F5 expects the opportunity to continue throughout 2015 and beyond. The ACE installed base is over $1 billion of potential business, but F5′s target market is much larger. In addition to replacing Cisco’s existing solutions, F5 has the added opportunity of providing customers additional functionality including security, access control and application acceleration.
F5 stepped up its market initiatives on the Cisco ACE opportunities starting Q2 2015, to take advantage of its current growth momentum and experience in transitioning ACE customers to F5 ADC solutions. The company has also created a sales service web portal for ACE Migration which complements a significant experience and consulting expertise. F5 continued to see strong sales of Cisco ACE replacements in Q1 2015, as customers continue to take the opportunity to add additional functionality, such as the AFM and AFM security modules. It expects the trend to continue in Q2 2015 as well.
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F5 Networks(NASDAQ:FFIV)
- F5 Networks’ (FFIV) Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, January 21st, 2015 [↩]