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MKM: F5 Networks' Q3 Results Indicate Mixed Shift To Software

Priya Nigam

F5 Networks, Inc. (NASDAQ: FFIV) delivered overall healthy results for the third quarter. While underlying organic shift toward Software during the quarter is a positive, the EPS estimates for 2019 and 2020 have been lowered due to investments related to NGINX, according to MKM Partners.

The Analyst

MKM Partners’ Michael Genovese maintained a Neutral rating on F5 Networks, while reducing the price target from $175 to $164.

The Thesis

F5 Networks reported third-quarter total revenues at $563 million, including $5 million from the NGINX acquisition which it closed on May 8, Genovese said in the note.

Product revenues also grew 4% to $249 million. Organic Software Product revenues rose 79%, while total Software revenues grew 91%. The analyst considers this as “an important positive inflection” for the company’s Software sales performance.

View more earnings on FFIV

Systems Product revenues fell 11% to $181 million, with more customers shifting to Software Products.

F5 Networks guided to fourth-quarter revenue of $577 million-$587 million, which includes a contribution of $8 million from NGINX. Genovese mentioned that the company plans to invest heavily in an integrated F5/NGINX platform targeting the DevOps community and expects to release this in about six months.

The analyst reduced the EPS estimates for 2019 and 2020 from $2.78 to $2.56 and from $11.32 to $10.74, respectively, to reflect the NGINX investment.

Price Action

Shares of F5 Networks are down 0.65% at $147.7 at the time of publishing on Thursday.

Latest Ratings for FFIV

Date Firm Action From To
Jul 2019 Maintains Outperform
Jul 2019 Maintains Outperform
Jul 2019 Downgrades Neutral Sell

View More Analyst Ratings for FFIV
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