F5 Networks's (NASDAQ:FFIV) Posts Q4 Sales In Line With Estimates But Quarterly Guidance Underwhelms
Network application delivery and security specialist F5 Networks (NASDAQ:FFIV) reported results in line with analysts' expectations in Q4 FY2023, with revenue flat year on year at $707 million. However, next quarter's revenue guidance of $685 million was less impressive, coming in 1.69% below analysts' estimates. Turning to EPS, F5 Networks made a non-GAAP profit of $3.50 per share, improving from its profit of $2.62 per share in the same quarter last year.
Is now the time to buy F5 Networks? Find out by accessing our full research report, it's free.
F5 Networks (FFIV) Q4 FY2023 Highlights:
Revenue: $707 million vs analyst estimates of $702.3 million (small beat)
EPS (non-GAAP): $3.50 vs analyst estimates of $3.21 (9.08% beat)
Revenue Guidance for Q1 2024 is $685 million at the midpoint, below analyst estimates of $696.8 million
Free Cash Flow of $174.4 million, up 16.2% from the previous quarter
Gross Margin (GAAP): 80.1%, up from 78.9% in the same quarter last year
“In our fourth quarter, we delivered 11% software revenue growth, operating margin improvement, and double-digit earnings per share growth,” said François Locoh-Donou, F5’s President and CEO.
Initially started as a hardware appliances company in the late 1990s, F5 Networks (NASDAQ:FFIV) makes software that helps large enterprises ensure their web applications are always available by distributing network traffic and protecting them from cyberattacks.
Content Delivery
The amount of content on the internet is exploding, whether it is music, movies and or e-commerce stores. Consumer demand for this content creates network congestion, much like a digital traffic jam which drives demand for specialized content delivery networks (CDN) services that alleviate potential network bottlenecks.
Sales Growth
As you can see below, F5 Networks's revenue growth has been unimpressive over the last two years, growing from $682 million in Q4 FY2021 to $707 million this quarter.
F5 Networks's quarterly revenue was only up 0.99% year on year, which might disappoint some shareholders. However, its revenue increased $4.33 million quarter on quarter, a strong improvement from the $533 thousand decrease in Q3 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter, F5 Networks is guiding for a 2.2% year-on-year revenue decline to $685 million, a further deceleration from the 1.93% year-on-year decrease it recorded in the same quarter last year.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. F5 Networks's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 80.1% in Q4.
That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, sales and marketing, and general administrative overhead. F5 Networks's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that F5 Networks is controlling its costs and not under pressure from its competitors to lower prices.
Key Takeaways from F5 Networks's Q4 Results
Sporting a market capitalization of $8.68 billion, F5 Networks is among smaller companies, but its more than $803.3 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We struggled to find many strong positives in these results. Its revenue guidance for next quarter underwhelmed, driven by some customer caution given the uncertain macroeconomic environment. Furthermore, the company has a $180 million headwind from strong backlog fulfillment in fiscal year 2023 that tempers its 2024 revenue growth expectations. Overall, this was a mediocre quarter for F5 Networks. The company is down 2.21% on the results and currently trades at $145 per share.
F5 Networks may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
