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F5 Networks Inc FFIV

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Morningstar’s Analysis

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F5 Networks’ Software Strategy Taking Hold as Growth Accelerates in Q2; Maintaining $175 FVE

Mark Cash Equity Analyst

Analyst Note

| Mark Cash |

Narrow-moat F5 Networks' 7% year-over-year revenue growth in the second fiscal quarter solidly beat Cap IQ consensus expectations due to continued momentum in selling software-based offerings for application delivery and security necessities. We believe F5's efforts to shift its portfolio toward software solutions for application orchestration, security, and automation, alongside adjusting its sales model to be more customer-centric, have resonated with customers and prospects. F5 posted strength across its geographies, and management clearly indicated that this quarter's strength was not a one-time bump from customers accelerating purchases to navigate business impacts due to COVID-19. In our view, software strength coming from application access and security demand should continue to make up for the declining systems sales as customers change their application management methodologies. We are maintaining our $175 fair value estimate; after reporting, shares jumped more than 10% to over $144, and we believe investors still have an attractive margin of safety.

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Company Profile

Business Description

F5 Networks is a market leader in the application delivery controller market. The company sells products for networking traffic, security, and policy management. Its products ensure applications are safely routed in efficient manners within on-premises data centers and across cloud environments. More than half of its revenue is based on providing services, and its three customer verticals are enterprises, service providers, and government entities. The Seattle-based firm was incorporated in 1996 and generates sales globally.

801 5th Avenue
Seattle, WA, 98104
T +1 206 272-5555
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Mar 31, 2020
Fiscal Year End Sep 30, 2020
Stock Type Slow Growth
Employees 5,605