F5 Networks, Inc. is a provider of multi-cloud application services which enable its customers to develop, deploy, operate, secure, and govern applications in any architecture, from on-premises to the public cloud. The Company's enterprise-grade application services are available as cloud-based, software-as-a-service, and software-only solutions optimized for multi-cloud environments, with modules that can run independently, or as part of an integrated solution on its appliances. In connection with its solutions, the Company offers a range of professional services, including consulting, training, installation, maintenance, and other technical support services. The Company's customers include large enterprise businesses, public sector institutions, Governments, and service providers. It conducts its business globally and manage its business by geography. Its business is organized into three geographic regions: Americas; Europe, Middle East, and Africa; and the Asia Pacific region.

What Happened:

Shares of network application delivery and security specialist F5 (NASDAQ:FFIV) jumped 7.25% in the afternoon session after the company reported third-quarter results that narrowly beat analysts' revenue expectations. On a brighter note, earnings per share beat by an impressive 12%. Free cash flow also improved significantly compared to the previous quarter. Management added some bullish comments, stating that demand is stabilizing and that F5 Networks should be able to grow non-GAAP EPS by a double-digit percentage, which is higher than expectations. That really stood out as a positive in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing (although next quarter's EPS guidance was in-line). Overall, this was a mixed quarter for F5 Networks, but the double-digit percentage non-GAAP EPS growth for the full year is being received well. After the initial pop the shares cooled down to $159, up 0.02% from previous close.

What is the market telling us:

F5 Networks's shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was three months ago, when the stock dropped 6.85% on the news that the company reported underwhelming earnings, which narrowly beat analysts' revenue estimates. However, revenue guidance for the next quarter was below consensus estimates. Following the results, Barclays analyst downgraded the stock's rating from Overweight (Buy) to Equal-Weight (Hold).

F5 Networks is up 9.77% since the beginning of the year, and at $159 per share it is trading close to its 52-week high of $173.70 from August 2022. Investors who bought $1,000 worth of F5 Networks' shares 5 years ago would now be looking at an investment worth $907.53.

Is now the time to buy F5 Networks? Access our full analysis of the earnings results here, it's free.

Network application delivery and security specialist F5 (NASDAQ:FFIV) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 4.17% year on year to $702.6 million. However, next quarter's revenue guidance of $700 million was less impressive, coming in 1.01% below analysts' estimates. F5 Networks made a GAAP profit of $89 million, improving from its profit of $83 million in the same quarter last year.

Is now the time to buy F5 Networks? Find out by accessing our full research report free of charge.

“Over the last several years, through the combination of organic innovation, acquisitions and technology integration, we have created a converged portfolio uniquely capable of simplifying the complexities our customers face operating today’s hybrid, multi-cloud IT environments,” continued Locoh-Donou (company CEO). “We are delivering the gross margin improvement and operating leverage we committed to, and we are confident in our ability to achieve our target of double-digit non-GAAP earnings growth for fiscal year 2023,”

While the company initially started in the late 90s by selling hardware appliances, these days F5 (NASDAQ:FFIV) is making software that helps large enterprises ensure their web applications are always available, by distributing network traffic and protecting them from cyber attacks.

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 over the last two years, growing from $651.5 million in Q3 FY2021 to $702.6 million this quarter.

F5 Networks's quarterly revenue was only up 4.17% year on year, which isn't particularly great. On top of that, the company's revenue actually decreased by $533 thousand in Q3 compared to the $2.8 million increase in Q2 2023. Shareholders might want to pay closer attention to this situation as management is guiding for another decline in sales next quarter.

Next quarter, F5 Networks is guiding for a 0% year-on-year revenue decline to $700 million, a further deceleration from the 2.64% year-on-year decrease it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 0.26% over the next 12 months.

In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. 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 79.8% in Q3.

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. Significantly up from the last quarter, F5 Networks's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Key Takeaways from F5 Networks's Q3 Results

Sporting a market capitalization of $9 billion, F5 Networks is among smaller companies, but its more than $690.6 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.

It was good to see F5 Networks beat on revenue, albeit by a small magnitude, and Improve its gross margin this quarter. What is driving the stock up seems to be management comments that demand is stabilizing and that F5 Networks should be able to grow non-GAAP EPS by a double digit percentage, which is higher than expectations. That really stood out as a positive in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing (although next quarter's EPS guidance was in line). Overall, this was a mixed quarter for F5 Networks, but the double-digit percentage non-GAAP EPS growth for the full year is being received well. The stock is up 9.17% after reporting and currently trades at $164 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, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

Looking for more investment opportunities? One way to find them is to watch for paradigm shifts, just like how every company in the world is slowly becoming a technology company and facing increasing cybersecurity risks. This company is leading the charge in cyber defense with its cloud-native cybersecurity solutions while generating best-in-class revenue growth and SaaS performance metrics. It should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.

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F5 Networks (FFIV)

Seattle, WA-based F5 Networks Inc, founded in 1996, provides products and services to manage Internet traffic worldwide. Its application, delivery and networking products Improve performance, availability and security of applications running on networks that use the Internet Protocol (IP).

FFIV sits at a Zacks Rank #3 (Hold), holds a Momentum Style Score of B, and has a VGM Score of B. The stock is down 1.6% and up 4.1% over the past one-week and four-week period, respectively, and F5 Networks has lost 10.7% in the last one-year period as well. Additionally, an average of 676,064.38 shares were traded over the last 20 trading sessions.

Momentum investors also pay close attention to a company's earnings. For FFIV, nine analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.35 to $11.42 per share for 2023. FFIV boasts an average earnings surprise of 6.4%.

With strong earnings growth, a good Zacks Rank, and top-tier Momentum and VGM Style Scores, investors should think about adding FFIV to their portfolios.

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