Yahoo Finance F5 (NASDAQ:FFIV) Surprises With Q2 Sales, Stock Jumps 13.6%
Network application delivery and security specialist F5 (NASDAQ:FFIV) announced better-than-expected results in Q2 CY2024, with revenue down 1% year on year to $695.5 million. Guidance for next quarter's revenue was also better than expected at $730 million at the midpoint, 1.8% above analysts' estimates. It made a non-GAAP profit of $3.36 per share, improving from its profit of $3.21 per share in the same quarter last year.
Is now the time to buy F5? Find out in our full research report.
F5 (FFIV) Q2 CY2024 Highlights:
Revenue: $695.5 million vs analyst estimates of $686 million (1.4% beat)
EPS (non-GAAP): $3.36 vs analyst estimates of $2.97 (13.1% beat)
Revenue Guidance for Q3 CY2024 is $730 million at the midpoint, above analyst estimates of $717 million
Gross Margin (GAAP): 80.4%, in line with the same quarter last year
Free Cash Flow of $201.8 million, similar to the previous quarter
Billings: $661.2 million at quarter end, down 5.2% year on year
Market Capitalization: $10.39 billion
“We delivered third quarter revenue at the top end of our guidance range fueled by software growth and continued growth of our global services offerings,” said François Locoh-Donou, F5’s President and CEO.
Initially started as a hardware appliances company in the late 1990s, F5 (NASDAQ:FFIV) makes software that helps large enterprises ensure their web applications are always available by distributing network traffic and protecting them from cyberattacks.
Content Delivery
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's revenue growth has been weak over the last three years, growing from $651.5 million in Q3 2021 to $695.5 million this quarter.
This quarter, F5's revenue was down 1% year on year, which might disappointment some shareholders.
Next quarter's guidance suggests that F5 is expecting revenue to grow 3.3% year on year to $730 million, improving on the 1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 3.2% over the next 12 months before the earnings results announcement.
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Gross Margin & Pricing Power
What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn't cost much to provide it as an ongoing service.
These costs include servers, licenses, and certain personnel, and leverage on them can decide the winners in competitive markets because they determine how much can be invested into new products, sales, and talent.
F5's robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher operating profits at scale. As you can see below, it averaged an impressive 80% gross margin over the last year. That means F5 only paid its providers $19.99 for every $100 in revenue to run its products and services.
This quarter, F5's gross profit margin was 80.4%, which is in line with the same quarter last year. On a wider time horizon, F5's full-year margin has been trending up over the past 12 months, increasing by 1.4 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs.
Key Takeaways from F5's Q2 Results
It was good to see F5's strong revenue guidance for next quarter, which topped analysts' expectations, which is what the market seems to be cheering. We were also glad its revenue beat and gross margin improved compared to last year. Overall, this was a bad quarter for F5. The stock traded up 13.6% to $201.99 immediately after reporting.
So should you invest in F5 right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
