F5 Networks Earnings: Product Sales & Services Help Drive Results

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F5

Application delivery networking provider F5 Networks (NYSE:FFIV) reported its Q2 FY 2017 earnings on April 26. F5 reported 7% annual growth in revenues to $518 million. Strong revenue growth came from both product sales as well as services, which were both up 7% on a y-o-y basis. [1]

We have a $147 price estimate for F5’s stock, which is around 10% higher than the current market price.

See our complete analysis for F5 Networks

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Q2 FY’17 Highlights

Over the years, F5 has increasingly facing competition from new entrants in the ADC market as well as from native cloud-based service providers. Traditionally, ADC vendors have focused on helping customers manage applications in their own data centers. However, as more and more applications are now being deployed on the cloud, ADC vendors are increasingly focused on evolving their support for cloud applications. Consequently, these companies have to compete with the offerings of cloud vendors. This has resulted in strong revenue growth for software product sales and services revenues, as compared to hardware revenue streams. Despite this, F5’s combined product sales were up 7% to $241 million as shown below. This was complemented by a 7% annual increase in services revenues to $277 million.

ffiv_q2e2

In addition to revenue growth, F5’s consolidated gross margin (GAAP) was flat over the comparable prior year period at 83%. Operating expenses rose only 2% y-o-y to $292 to help drive net earnings. As a result, net income was up almost 20% to $93 million for the quarter and earnings per share rose 16% to $1.95.

ffiv_q2e1

Guidance For June Quarter

For the June quarter, F5’s management expects a 6% annual growth in revenues to $525 million. Its gross margin will likely remain around current levels of 83% going forward. Disciplined operating expense management could help F5 networks report sustained growth in its earnings and EPS. F5 expects its non-GAAP diluted EPS for the June quarter to be around $2.03 as compared to the Reuters’ consensus estimate of around $2.08. [2]

ffiv_q2e3

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Notes:
  1. F5 Q2’17 Earnings Call Transcript, Seeking Alpha, April 2017 []
  2. Reuters Analysis For F5 Networks, Reuters Stock Analysis For F5, Reuters April 2017 []