Interesting Barons Article , the parallels will resonate
REVENUE-GROWTH disappointment is something investors rarely accept lying down from any company, but particularly from tech stocks. F5 Networks (FFIV), a network-equipment vendor, is a fast-growing tech company whose sales rises have slowed to a still healthy 15%-to-20% from 30%-to-40%.
Nevertheless, market expectations matter much more than absolute growth levels. The Seattle-based company's most recent quarter disillusioned investors accustomed to the strong growth of the past.
F5 Networks makes "application-delivery controllers," hardware that manages Internet traffic. The ADC box examines incoming data transmissions and decides if there are security threats, un-encrypts and encrypts data, and can compress data bandwidth, among other things. F5 has about 48% of the ADC market and competes with the likes of Cisco Systems (CSCO), at about a 11% share, and Citrix Systems (CTXS), about a 14% share.
In the second half of the September-ended fiscal 2012, customers hesitated on purchasing during the fiscal-cliff negotiations. Even so, for the entire year sales rose 20% to $1.38 billion, while EPS increased 16% to $3.48. But that's down from 30% and 50% rises, respectively, in the previous year.
Things worsened in the fiscal first quarter ended Dec. 31, when profits rose 6% to $69.5 million, or 88 cents a share, from $66.5 million, or 83 cents, in the year-ago quarter. The revenue rise was "just" 13% to $365.5 million. F5 said that service revenue jumped 28% but product sales only 4%, partly the result of lower federal-government sales. Cue the panic.
The doubts raised among investors have hurt the stock. At Friday's close of $94.01, the stock is off by a third from highs of nearly $140 last April. Still, over the long term, it's likely that more digital data will be created year after year, and data-traffic growth shows little sign of slowing.
A lot of that traffic will be shifting to the cloud, says Charlton Reynders, CEO of Reynders McVeigh Capital Managemen
Obsolete is still the quiet killer of great technologies. The concept of "the cloud," as an entity, rendered the need for storage and certain aspects of bandwidth and security as commodities, and, therefore, better to be centralized. F5 also provides the gateways and routers to their data and is able to effectively manage these factories which may never become obsolete. Those are big shoes to fill.