F5 Networks, Inc. (NASDAQ:FFIV) will announce its 1Q12 earnings on Wednesday afternoon. F5 Networks, Inc. (NASDAQ:FFIV) is the global leader in application delivery networking, providing technology that optimizes the security and performance of servers, data storage devices and other network resources. Better execution and focus on enterprise and service providers has helped F5 Networks emerge as the leader in the application delivery controller (ADC) market, leaving networking behemoth like Cisco Systems (NASDAQ:CSCO) behind. Other competitors in the information technology sector include: Blue Coat Systems (NASDAQ:BCSI), Radware (NASDAQ:RDWR), and Riverbed Technology (NASDAQ:RVBD).
We currently have a $118 price estimate for F5 Networks, which is around 11% ahead of its yesterday’s close of $106.
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Strong growth in revenue, net income
F5 has reported consistent double-digit revenue growth for the past four quarters. In that timeline, the average revenue growth has been more than 30%. Net income is on the rise as well, rising almost 55% in 3Q11 and 68% in 2Q11.
In 4Q11, F5 netted revenues of $314.6 million, growing by 24% from 4Q10, driven by increases in both product and service revenues.
Increasing web traffic, enterprise demand to drive sales
F5 networks is benefiting from the release of new consumer electronic products like smartphones, an increase in web traffic and widespread adoption of cloud-based services and computing.
We expect that in 2012, the push towards datacenter consolidation and virtualization will continue to bring enterprise business for F5 networks. F5’s superior product offerings have already placed it at the top of the application delivery market and we expect its leadership to continue for the coming quarters.
We also expect F5 to explore additional opportunities and continue expanding in the service provider and security markets. It was recently placed in the leaders’ quadrant of the SSL VPN Magic Quadrant by Gartner, a premier research firm, alongside the likes of Juniper and Cisco. Cisco and Juniper, if not careful, can lose their market share to F5, as they did earlier in the ADC market.
However, the ongoing financial uncertainty in Europe can have an impact on F5’s EMEA business. Moreover, a decrease in U.S. federal spending and a tightening of budgets in financial services can also have a major impact on F5’s revenues in the coming quarters as the U.S. federal government and financial services sector account for a significant share of F5’s revenues.
Our price estimate for F5 stands at $118, implying a premium of more than 10% to the market price.