What Is F5 Networks’ Fundamental Value Based On Expected 2018 Results?

Application delivery networking provider F5 Networks (NYSE:FFIV) has reported positive results in recent years, driven by robust demand for its offerings. The ADN market has grown in double digits in 2016 and 2017, up from mid single-digit growth in previous years. As a result, market leader F5 sustained growth in its core ADN offerings. Growth in core product sales has slowed down in the last two years for F5, and the company has lost market share with many competing players entering the market including Citrix Systems, Array Networks, Aryaka Networks and other large players such as Cisco (NASDAQ:CSCO), HP Enterprise (NYSE:HPE) and Juniper (NYSE:JNPR). However, F5’s services segment has continued to grow at a rapid pace during this period, and we expect that to continue through the end of the decade.

In terms of the product segment, F5’s market share has fallen from an estimated 25% in 2013 to 22% in 2017. This is attributable to growing competition from new entrants in the market as well as from native cloud-based service providers. According to Global Info Research, the ADN market is expected to grow in double digits through 2021 to become an $8 billion market, up from $5 billion in 2017. Given the increasing competition in this domain, we forecast F5 Networks to continue to lose share in the ADN market. Despite losing share in the market, we expect F5’s ADN business to continue to grow at low single digits. We have summarized our forecasts on our interactive dashboard platform, where you can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image above shows one of the key steps in identifying F5 Networks’ valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which in turn impacts enterprise value (assuming a constant EBITDA multiple).

We maintain our long-term price estimate for F5 Networks at $152. Our new price estimate is in line with the current market price. Our forecasts for the year are summarized in our dashboards for F5 Networks. If you have a different view, you can modify various inputs to see how updated forecasts and estimates impact the company’s valuation.

See our complete analysis for F5 Networks

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