Network application delivery and security specialist F5 (NASDAQ:FFIV) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 3.52% year on year to $674.4 million. Guidance for the next quarter was also in line with estimates, coming in at $690 million at the midpoint, being 0.09% below analyst estimates. F5 Networks made a GAAP profit of $83 million, down on its profit of $89.6 million, in the same quarter last year.
Is now the time to buy F5 Networks? Access our full analysis of the earnings results here, it's free.
F5 Networks (FFIV) Q3 FY2022 Highlights:
- Revenue: $674.4 million vs analyst estimates of $667.8 million (0.99% beat)
- EPS (non-GAAP): $2.57 vs analyst estimates of $2.23 (15% beat)
- Revenue guidance for Q4 2022 is $690 million at the midpoint, roughly in line with what analysts were expecting
- Free cash flow of $62 million, down 48.8% from previous quarter
- Gross Margin (GAAP): 80.6%, down from 81.4% same quarter last year
“Customers depend on F5 to secure and deliver extraordinary digital experiences that drive their businesses and fuel their brands,” said François Locoh-Donou, F5’s President and CEO.
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 unimpressive over the last year, growing from quarterly revenue of $651.5 million, to $674.4 million.
F5 Networks's quarterly revenue was only up 3.52% year on year, which would likely disappoint many shareholders. On the other hand, revenue increased $40.2 million quarter on quarter, a strong improvement on the $52.8 million decrease in Q2 2022, and a sign of acceleration of growth, which is very nice to see indeed.
Guidance for the next quarter indicates F5 Networks is expecting revenue to grow 1.17% year on year to $690 million, slowing down from the 10.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.7% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the 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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 80.6% in Q3.
That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like F5 Networks to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that F5 Networks is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from F5 Networks's Q3 Results
With a market capitalization of $9.3 billion F5 Networks is among smaller companies, but its more than $738.3 million in cash and positive free cash flow over the last twelve months give us confidence that F5 Networks has the resources it needs to pursue a high growth business strategy.
Overall, this was an ok quarter in line with estimates. The company is up 10.8% on the results and currently trades at $171 per share.
F5 Networks may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable 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 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.