F5 (FFIV) Q3 Earnings Show Positive Signs in Software Demand
F5, Inc. FFIV shares closed 5.8% higher on Tuesday after the cloud security company reported impressive third-quarter fiscal 2023 results. The company’s latest quarterly performance reflected the improving demand for its software solutions, which had been hurt by tightened IT spending amid persistent macroeconomic uncertainties for the past few quarters.
Software Demand Highlights Positivity
Though the F5 Software segment’s revenues declined 2.8% year over year to $174 million, it grew 32% sequentially. In the second quarter of fiscal 2023, the division’s revenues had fallen 13% year over year and 21.3% sequentially to $131.9 million due to customers’ tight budgets amid macroeconomic uncertainties. Third-quarter Software sales were also higher than the first-quarter level of $167.5 million.
Within the Software segment, F5’s Subscription Software sales increased 4% year over year and reached a record high of $152 million. Strong growth in renewals, stabilization in new-term subscriptions and interim expansions mainly aided Subscription Software’s revenue growth.
The acceleration in BIG-IP and NGINX subscription software deals remained a major growth driver during the quarter. BIG-IP’s data point performance, automation capabilities and the lower cost of ownership helped F5 win multiple deals in the third quarter, including wins at a major American airline, a major UK retail and commercial bank and a multi-national automobile manufacturer.
F5 also witnessed the strong demand for its NGINX subscription as large enterprises continue to adopt the solution for their cloud and Kubernetes workloads. During the last reported quarter, the company struck a multi-million-dollar term-based subscription renewal for its NGINX solution.
F5, Inc. Price, Consensus and EPS Surprise
F5, Inc. price-consensus-eps-surprise-chart | F5, Inc. Quote
Q3 Result Highlights
In the third quarter, F5 managed to fare better than its guidance ranges for key metrics. The company’s revenues for the third quarter increased 4.2% year over year to $702.6 million and came well above the midpoint of management’s guidance range of $690-$710 million. However, the top line was slightly lower than the Zacks Consensus Estimate of $703.2 million.
The company’s third-quarter non-GAAP gross margin of 82.5% was higher than management’s forecast of approximately 82%, while non-GAAP operating expenses of $346 million came in lower than the guidance range of $348-$360 million.
This Seattle, WA-based company’s non-GAAP earnings of $3.21 per share beat the Zacks Consensus Estimate of $2.86. The bottom line increased 24.9% from the year-ago quarter’s $2.57 per share and was way higher than management’s guided range of $2.78-$2.90 per share.
Zacks Rank & Stocks to Consider
F5 currently carries a Zacks Rank #4 (Sell). Shares of FFIV have risen 10.7% year to date (YTD).
Some better-ranked stocks from the broader technology sector are Salesforce CRM, Fortinet FTNT and NVIDIA NVDA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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