What Is F5 Networks’ Fiscal Year Outlook Post-Q1 Earnings?

F5 Networks (NYSE:FFIV) reported its Q1 earnings on January 23. The company’s results beat EPS expectations, while revenues came in lower than consensus estimates. Management’s commentary around its goal to move to higher-margin software businesses, demand-side traction and investments in services point toward a potential growth acceleration over the next few years.

However, we are maintaining our price estimate and will wait to see that traction to translate into cash flows before we revise our forecasts. We currently have a price estimate of $168 per share for F5, which is about 5% higher than the current market price. Our interactive dashboard on F5’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

F5’s Q1 revenue was $544 million (+4% y-o-y), closer to the floor of the guided range of $542-552 million. Product revenue grew to $234 million (+3% y-o-y) and Services revenue grew to $310 million (+5% y-o-y). For Q2, the company’s management expects total revenue of $543-553 million.

The company’s revenue coming in towards the lower end of the guidance range can partly be blamed on the service provider side. Telecom was relatively weak in the quarter (especially in North America), with weakness expected to continue over the next few quarters. The major factor behind the weakness was the transition from 4G to 5G, with many 4G projects nearing completion and 5G projects yet to pick up full steam. However, in order to position itself well, F5 has been hiring on the front end. While edge use cases associated with 5G present a natural opportunity, the company’s management seems focused on the requirements arising from core traffic increases that will necessitate capacity build outs and upgrades.

Other than the service provider vertical, the company performed fairly well across segments, even in the Federal business despite the partial U.S. government shutdown. Cloud Edition appears to have seen significant traction in Q1, with the number of deals in Q1 coming in higher than those for all of 2018. Along expected lines, the price per application across the Cloud Edition and Cloud-Native Application Services platform is much lower than buying hardware. Coupled with the greater volume of applications that the software can address, the company’s management sees cloud opening up new avenues for growth.

Do not agree with our forecast? Create your own price forecast for F5 by changing the base inputs (blue dots) on our interactive dashboard.