Earnings Preview: F5 Networks

F5 Networks Inc. (FFIV) is scheduled to announce its second quarter fiscal 2011 results on April 20, 2011, and we observe both upward and downward movements in analyst estimates.

First Quarter Overview

F5 Networks delivered decent first quarter results, beating the Zacks Consensus Estimate on the bottom line. The quarter’s earnings came in at 68 cents, up 88.9% from the year-ago quarter. However, the reported revenue was in line with the Zacks Consensus Estimate.

F5 Networks reported first quarter revenues of $254.3 million, up 40.6% from the year-ago period, driven by increases in both product and services revenues. The continued enhancement of product suites and growth in new and renewed service maintenance contracts also contributed to the improvement.

A stable pricing environment and better product mix aided the 226 basis points (bps) gross margin expansion from the year-ago quarter. Operating margin surged 680 bps from the year-earlier period.

Second Quarter Guidance

Guidance was way below the Street’s consensus. F5 Networks expects revenues of $275.0–$280.0 million. On a GAAP basis, earnings per share are expected to be in the range of 65–67 cents. Excluding stock-based compensation expense, management expects non-GAAP earnings per share to range between 84 cents and 86 cents.

Agreement of Analysts

Out of the 23 analysts providing estimates for the second quarter, only 1 made an upward revision, while 5 revised their estimates downward in the last 30 days. Out of the 25 analysts providing estimates for fiscal 2011, only 1 moved upward, while 7 analysts revised their estimates downward in the last 30 days. In the past seven days, only one analyst reduced estimates for both the second quarter and fiscal 2011.

The analysts expect F5 Networks to report a soft second quarter, reflecting weakness in Japan and uncertainty regarding Federal budgets.

Magnitude of Estimate Revisions

The movement of the Zacks Consensus Estimates for the second quarter and fiscal 2011 indicates more negative sentiments of analysts. For the past ninety days, Zacks Consensus Estimates for the quarter and full year dropped a penny and two cents, respectively, to 67 cents and $2.82.


Better execution and focus on enterprise and service providers has placed F5 Networks well in the application delivery controller (ADC) market and helped it take share from Cisco Systems Inc. (CSCO). F5 Networks is also keen on expanding its cloud exposure. The analysts see demand acceleration for F5’s ADCs in telcos in the back half of 2011 and beyond as soon as Victoria and TMOS 11 come into production in the first half.

Currently, F5 Networks has a Zacks Rank of #3 implying a short-term Hold recommendation.

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