F5 Networks (NYSE:FFIV) announced its fiscal Q2’18 earnings on April 25, reporting a modest 3% increase in net revenues to $533 million. Product revenue fell 2% y-o-y to under $238 million while services revenues were up 7% to $296 million. In recent years, the application delivery networking (ADN) provider has reported steady growth in revenues driven by robust demand for its offerings. In the same period, the company’s services segment has outpaced growth in its core ADN product sales. Through fiscal 2018, F5’s product revenues have fallen as the company is facing some uncertainty in demand for its core ADC solutions over the cloud since some of its customers are reevaluating their application architectures and deployment options. Comparatively, services business has sustained revenue growth in recent quarters.
We expect product revenues to be flat over the comparable prior year period while services revenues are expected to increase in the mid single-digits. Similarly, the company’s services gross margin has consistently improved in recent years, while product gross margins have compressed. This trend is also expected to continue through the current year. We have summarized our expectations and forecasts for FY’18 results on our interactive dashboard for F5 Networks. It is important to note that while the services business would have limited demand without the presence of core ADN product sales, the transition of customer preferences from license agreements to SaaS solutions provides an opportunity for F5 to better monetize its services offerings. If you think differently, you can change expected segment revenue and margin figures for F5 Networks to gauge how it will impact the company’s results for fiscal year 2018.
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