F5’s stock slumps as revenue growth slows to a crawl

Shares of the community visitors administration and software safety agency F5 Inc. fell in prolonged buying and selling right this moment after the corporate delivered blended first-quarter financial results, beating expectations on earnings however falling quick on income.

The corporate’s internet revenue for the quarter fell from final 12 months, totaling $72.4 million, down from the $93.5 million revenue it recorded a 12 months in the past. Earnings earlier than sure prices similar to inventory compensation got here to $2.47 per share, beating Wall Avenue’s goal of $2.33 per share. Nonetheless, F5’s income grew by simply 2% from a 12 months earlier, to $700.3 million, in step with Wall Avenue’s forecast.

Traders have been clearly disillusioned with the information, as F5’s inventory fell greater than 4% in after-hours buying and selling, including to a slight decline earlier within the day.

In his feedback, F5 President and Chief Government François Locoh-Donou (pictured) appeared to acknowledge the frustration, saying that the corporate’s clients are centered on minimizing their spend and optimizing their present investments. “We’re enabling our clients to ship the dynamic digital experiences that drive their companies,” he mentioned. “On the identical time, we’re serving to them consolidate options and use fewer sources to handle and safe their hybrid and multicloud purposes.”

F5 is taken into account to be a number one participant within the community safety and visitors administration business, primarily serving giant enterprises and medium-sized companies. In addition to promoting networking gear, it additionally gives software program and companies as a part of an ongoing effort to maneuver past its conventional {hardware} sales-based enterprise mannequin. The transfer into software program and companies is acceptable, as a result of F5’s income from {hardware} associated gross sales stayed flat on a year-over-year foundation, whereas companies income rose by 2%.

The corporate is trying to develop its companies enterprise too. Alongside its monetary outcomes, it introduced that it has struck a deal to amass a small, Silicon Valley startup known as Lilac Cloud Inc. for an undisclosed worth. Lilac Cloud is described as a supplier of “revolutionary software supply companies,” and F5 revealed that it at present makes use of the startup’s content material supply community expertise to energy its F5 Distributed Cloud Companies. The acquisition is predicted to shut in the course of the subsequent three months.

Though the addition of Lilac Cloud is just not anticipated to have any main impression on F5’s income numbers, Locoh-Donou mentioned he was assured that the corporate will develop its gross sales by about 9% to 11% by the tip of fiscal 2023.

The CEO mentioned the corporate goals to take care of double-digit adjusted earnings progress this 12 months and on an annual foundation.“We’ll proceed to guage our price base and take additional motion as wanted to attain this objective,” he mentioned.

If Locoh-Donou is to make good on that promise, F5 might want to ship a robust end to the 12 months as a result of its forecast for the second quarter was considerably much less encouraging. The corporate supplied earnings steering of between $2.36 and $2.48 per share, beneath Wall Avenue’s forecast of $2.50 per share. By way of income, F5 forecast a variety of $690 million to $710 million, the midpoint of which is available in decrease than analysts’ $705.7 million consensus estimate.

Photograph: F5 Networks