F5 Networks Q4’15 Earnings Preview: 2015 To Mark Another Year Of Strong Growth

Leading application delivery network (ADN) solutions provider F5 Networks (NASDAQ:FFIV) is expected to report its Q4 2015 earnings on October 28th (as per the investor relations website). F5 has seen its revenue base almost triple in the last five years, from a little over $600 million in fiscal 2009 to approximately $1.7 billion in 2014. The company has performed well so far this year.  And even though the growth rate has slowed down, we expect 2015 to be another year of strong growth for F5 Networks.

F5 continues to invest in technology in key areas such as security, mobility, the cloud, and software-defined application services. We believe the company has strong long-term growth potential, given: 1) F5’s strength in the enterprise business; 2)  the rising demand for its security products; 3) the success of its ‘Good, Better, Best’ bundles in driving the return of million-dollar-plus deals;  and, 4) the broader adoption of its solutions.

Our price estimate of $129 for F5 Networks is marginally higher than the current market price.

See our complete analysis for F5 Networks here

Security Business Remains The Largest Growth Driver

F5 believes that its security business will be its most important growth driver. With increasing network complexity, reducing security risk is an important criterion for enterprises. The cyber security market is estimated to grow from $106.32 billion in 2014 to $170.21 billion by 2020. ^[1] Since its entry in the Internet firewall market in February 2012, F5 has significantly expanded its security solutions portfolio with the addition of new products. Because requirements continue to increase for customers to protect their applications in both on-premise data centers and in private and public clouds, the company sees continuing demand for its products in the future.

Given the highly visible cyber security attacks in Q3 2015, F5 had a number of notable wins in the quarter, including a branch of the U.S. government and a prestigious medical research group, as an increasingly diverse pool of customers approached F5 to secure their networks. F5 signed its largest service provider security deal to date, a multi-million dollar agreement with a domestic tier 1 carrier in Q3 2015.

In Q4 2015, F5 launched the next version of BIG-IP, version 12.0, which will help customers navigate their application centric environment without compromising security or operational efficiency. F5 expects to see strong demand for its expanding portfolio of security solutions as customers look to adopt hybrid architectures, deploying applications both in premise and in the cloud.

‘Good, Better, Best’ Pricing Model’ To Drive Software Sales’

F5 introduced the ‘Good, Better, Best’ pricing model in November 2013 to help customers maximize their value of enterprise application delivery. The program helps customers select a platform that best fits the organizations’ needs, offering advanced traffic management, optimization and security services. The company claims that the model makes it easier to package its solutions together for the customer, giving them some incentive to add more modules.

F5 continues to experience strong momentum in the ‘Good, Better, Best’ bundles, with increasing number of the customers opting for the ‘Best’ solutions. Sales of these bundles now account for a significant percentage of its overall sales.

Cisco ACE Replacement Opportunity To Continue Beyond 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. 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 expects  the opportunity to continue throughout 2015 and beyond.

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1. Cyber Security Market worth $170.21 Billion in 2020, Markets and Markets [↩]