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F5 Networks (FFIV) Q3 Earnings Beat, Q4 Outlook Encouraging
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F5 Networks Inc. (FFIV - Free Report) reported third-quarter fiscal 2020 non-GAAP earnings per share of $2.18, beating the Zacks Consensus Estimate of $2.05. Moreover, the company’s quarterly earnings came in significantly higher than its guidance of $1.91-$2.13 per share. Nonetheless, non-GAAP earnings fell 13.5% from the year-ago quarter as elevated operating expenses offset the benefit of higher revenues to a large extent.
Non-GAAP revenues increased 4% year over year to $586 million, surpassing the Zacks Consensus Estimate of $572 million on solid software growth. Also, revenues came in ahead of the company’s $555-$585 million guided range.
Revenue Details
Product revenues (43% of total revenues) during the quarter totaled $253 million, up 1.8% year over year. Software sales soared 43% year over year. This upside can be attributed to the growing adoption of the Enterprise License Agreement (ELA) and annual subscriptions among customers.
Service revenues (57% of total revenues) increased 4.9% to $330 million. Improvements to the tools and processes that the company’s team uses to identify and secure renewals are among the key catalysts. Further, healthy services attached in renewal rates to software sold as perpetual or as subscriptions, including NGINX-related sales, were tailwinds. Moreover, increase in consulting-services demand associated with the rising software sales is an upside.
Gross profit inched up 1% year over year to $477 million. However, gross margin contracted 210 basis points (bps) to 81.8%.
Operating expenses flared up 5.3% year on year to $390 million. As a result of lower gross margin and higher operating expenses, the company’s non-GAAP operating margin shrunk 320 bps to 15%.
Balance Sheet & Cash Flow
F5 Networks exited the reported quarter with cash and investments of $1.1 billion compared with the prior-year quarter’s $1 billion.
During the first nine months of fiscal 2020, the company generated $485 million of operating cash flow. Moreover, during the same time frame, it bought back $50 million worth of its common stocks.
Outlook
The company issued an encouraging business outlook for the fiscal fourth quarter.
For the fiscal fourth quarter, F5 Networks expects non-GAAP revenues of $595-$615 million. The Zacks Consensus Estimate for revenues is pegged at $592.9 million.
The company anticipates non-GAAP earnings per share in the $2.30-$2.42 band. The Zacks Consensus Estimate is pinned at $2.21.
We believe that surging demand for multi-cloud application services will be a key growth driver. Furthermore, solid demand for software solutions is a tailwind. Rising traction from subscription and ELA offerings is another driving factor.
Additionally, F5 Networks and NGINX’s first combined solution, Controller 3.0, is expected to increase the total addressable market and deal sizes by spending more use cases across DevOps and Super-NetOps customer profiles.
The long-term earnings growth rate for Dropbox, Zoom and Micron is currently pegged at 32.5%, 25%, and 10.3%, respectively.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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F5 Networks (FFIV) Q3 Earnings Beat, Q4 Outlook Encouraging
F5 Networks Inc. (FFIV - Free Report) reported third-quarter fiscal 2020 non-GAAP earnings per share of $2.18, beating the Zacks Consensus Estimate of $2.05. Moreover, the company’s quarterly earnings came in significantly higher than its guidance of $1.91-$2.13 per share. Nonetheless, non-GAAP earnings fell 13.5% from the year-ago quarter as elevated operating expenses offset the benefit of higher revenues to a large extent.
Non-GAAP revenues increased 4% year over year to $586 million, surpassing the Zacks Consensus Estimate of $572 million on solid software growth. Also, revenues came in ahead of the company’s $555-$585 million guided range.
Revenue Details
Product revenues (43% of total revenues) during the quarter totaled $253 million, up 1.8% year over year. Software sales soared 43% year over year. This upside can be attributed to the growing adoption of the Enterprise License Agreement (ELA) and annual subscriptions among customers.
Service revenues (57% of total revenues) increased 4.9% to $330 million. Improvements to the tools and processes that the company’s team uses to identify and secure renewals are among the key catalysts. Further, healthy services attached in renewal rates to software sold as perpetual or as subscriptions, including NGINX-related sales, were tailwinds. Moreover, increase in consulting-services demand associated with the rising software sales is an upside.
F5 Networks, Inc. Price and Consensus
F5 Networks, Inc. price-consensus-chart | F5 Networks, Inc. Quote
Margins
Gross profit inched up 1% year over year to $477 million. However, gross margin contracted 210 basis points (bps) to 81.8%.
Operating expenses flared up 5.3% year on year to $390 million. As a result of lower gross margin and higher operating expenses, the company’s non-GAAP operating margin shrunk 320 bps to 15%.
Balance Sheet & Cash Flow
F5 Networks exited the reported quarter with cash and investments of $1.1 billion compared with the prior-year quarter’s $1 billion.
During the first nine months of fiscal 2020, the company generated $485 million of operating cash flow. Moreover, during the same time frame, it bought back $50 million worth of its common stocks.
Outlook
The company issued an encouraging business outlook for the fiscal fourth quarter.
For the fiscal fourth quarter, F5 Networks expects non-GAAP revenues of $595-$615 million. The Zacks Consensus Estimate for revenues is pegged at $592.9 million.
The company anticipates non-GAAP earnings per share in the $2.30-$2.42 band. The Zacks Consensus Estimate is pinned at $2.21.
We believe that surging demand for multi-cloud application services will be a key growth driver. Furthermore, solid demand for software solutions is a tailwind. Rising traction from subscription and ELA offerings is another driving factor.
Additionally, F5 Networks and NGINX’s first combined solution, Controller 3.0, is expected to increase the total addressable market and deal sizes by spending more use cases across DevOps and Super-NetOps customer profiles.
Zacks Rank and Other Key Picks
Currently, F5 carries a Zacks Rank #2 (Buy).
Other top-ranked stocks in the broader technology sector include Dropbox (DBX - Free Report) , Zoom Video Communications (ZM - Free Report) and Micron (MU - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Dropbox, Zoom and Micron is currently pegged at 32.5%, 25%, and 10.3%, respectively.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>