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Earnings Preview: F5 Networks

Zacks Equity Research

F5 Networks Inc. (FFIV) is scheduled to announce its second quarter fiscal 2012 results on April 18, 2012, and we notice limited movement in analyst estimates in the past 30 days. Nevertheless, the sentiment was positive.

First Quarter Overview

F5 Networks delivered decent first quarter results, beating the Zacks Consensus Estimate by 2 cents on the bottom line. The quarter’s earnings came in at 83 cents, up 22.1% from the year-ago quarter.

The outperformance was attributable to solid revenues arising from the growing demand for the company’s products, as well as market share gains. The company also witnessed strong demand from its enterprise customers owing to data center consolidations in order to reduce expenses.

The company reported revenues of $322.4 million, up 19.9% from the year-ago period, driven by double-digit growth in both product and service revenues. Strength in the Americas and Asia-Pacific-Japan regions was notable.

A stable pricing environment and better product mix aided the 100-basis point (bp) gross margin expansion from the year-ago quarter. Operating margin surged 120 bps from the year-ago period.


Assuming no major change in the macroeconomic environment, management expects to deliver product revenue growth acceleration during the second quarter of 2012. The company also targets year-over-year total revenue growth of at least 20% in fiscal 2012. The expectations are based on a strong product pipeline and competitive wins in all major markets.

For the second quarter of fiscal 2012, F5 Networks expects revenues of $332.0 million to $337.0 million. On a GAAP basis, earnings per share are expected to be in the range of 84–86 cents. The Zacks Consensus Estimate for the first quarter is pegged at 84 cents. Excluding stock-based compensation expense, the company estimates non-GAAP earnings per share of between $1.05 and $1.07.

Agreement of Analysts

The analysts are positive about F5’s dominant position in the Application Delivery and data center markets. Moreover, the upcoming infrastructure virtualization and data center consolidation projects are increasing the need for data center efficiencies in the enterprise vertical. This is boosting demand for F5’s networking products.

The analysts are also expecting a solid contribution from North America, but remain dubious regarding contributions from Europe and Asia.

Moreover, some analysts expect lackluster performance from telco and government verticals to continue in the quarter. But they also believe that F5 could witness positive tailwinds from the TMOS 11.0 and the VIPRION 2400 platform adoption.

Overall, the analysts are of the opinion that F5 will be able to match its revenue and earnings expectations for the coming quarter.

Out of the 21 analysts providing estimates for both the second quarter and fiscal 2012, only one raised the estimate in the last 30 days for fiscal 2012. Also, among the 20 analysts providing estimates for fiscal 2013, only one raised the estimate in the past 30 days.

The limited estimate revisions indicate that there were no major catalysts during the quarter and consequently, they remain concerned about the sluggishness in the telco and government verticals. However, the positive estimate revision reflects expectations regarding the ramp up of TMOS 11.0 and the VIPRION 2400 platform.

Magnitude of Estimate Revisions

There was practically no movement in the Zacks Consensus Estimates for the second quarter and fiscal 2012 in the past 30 days. But we notice modest upward movements in the past 90 days for both the second quarter and fiscal 2012.

The estimate for the second quarter increased two cents to 86 cents, while the estimate for fiscal year 2012 jumped 8 cents to $3.65. Again, over the past 90 days, the Zacks Consensus Estimate for fiscal 2013 surged from $4.30 to $4.42.

The upside to the estimates clearly reflects investor confidence, which is based on F5’s continuous product launches and increasing cloud exposure.


Better execution and focus on enterprise and service providers have placed F5 Networks well in the application delivery controller (ADC) market and helped it capture share from Cisco Systems Inc. (CSCO). F5 Networks is also keen on expanding its cloud exposure.

We are quite positive about the company’s North America business and the seasonal strength it typically enjoys in the U.S. federal business. F5’s second quarter guidance reflects sequential strength and we believe that the company will be able to match its revenue as well as earnings expectations.

Currently, F5 Networks has a Zacks #2 Rank, implying a short-term Buy recommendation.

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