Provider of multi-cloud application networks and cybersecurity solutions F5 Stock (NASDAQ: FFIV) decline (-35%) over the year. F5 enables organizations and data centers to defend their networks and applications against hackers and bots. The Company has largely pursued a growth-by-acquisition strategy to enter and expand its footprints in its operating segments. The company is benefiting from strong cloud and internet security tailwinds that are also driving growth from competitors such as Palo Alto Networks (NASDAQ:PANW) and Crowdstrike (NASDAQ:CRWD). The pandemic has created a disruption in the global supply chain, forcing F5 Networks to focus on its software business to alleviate the backlog of its hardware business. It strengthened its portfolio with the acquisitions of Volterra and Threat Shack in 2021 to double its total addressable market (TAM) in the cloud and application security segment. Supply chain disruptions have forced the company to move more towards software and away from hardware. This has enabled its software segment to generate 40% of its total revenue, compared to less than 24% before the pandemic in 2019. It has also enabled the company to generate 72% of its revenue from recurring sources. Although the volume of supply has not improved, there has been no further deterioration since June 2022. This could lead to improvements in the second half, as its suppliers plan to increase their additional capacity by the end of 2022.
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Legacy hardware plagued by supply chain issues
F5 originally sold Application Network Controllers (ADCs) to data centers, Internet service providers and governments. ADCs enable application management of Internet traffic between network devices and servers. Two catalysts forced the company to make the transition to growing its software business through a subscription model. First, the migration to cloud-based applications has hurt the demand for on-premises ADCs. Second, global supply chain disruption has limited the ability to ship systems despite strong demand. The company recorded a 38% growth in software sales, which led to a 4% growth in revenue.
Robust gains
On July 25, 2022, F5 released its fiscal third quarter earnings report for the quarter ending June 2022. The company reported earnings per share (EPS) of $2.57, excluding one-time items, compared to to consensus analyst estimates of $2.23, beating $0.34. Revenue rose 3.5% year-over-year (YoY) to $674.49 million, beating analyst estimates of $667.81 million. The company announced an additional $1 billion share repurchase program that comes on top of the remaining $272 million repurchase program. François Locoh-Donou, CEO of F5 Networks, commented, “Customers depend on F5 to secure and deliver extraordinary digital experiences that drive their businesses and fuel their brands. Demand for security across all customer verticals drove sales in the third quarter, driving total revenue growth of 4%. despite ongoing semiconductor shortages.”
Raise the roof
F5 raised its forecast for fourth-quarter 2023 EPS by $2.45 to $2.57 from analysts’ consensus estimate of $2.28. The company estimates revenue of $680-700 million versus $690.89 million according to consensus analyst estimates. Security issues continue to drive most of its customer engagements, fueling demand for software and hardware as customers add and scale applications.
The wins continue
F5 continues to score wins and gain market share. A major global retailer chose F5 over an existing bot defense vendor after a three-month proof of concept against their existing solution. Its distributed cloud bot solutions proved to be more efficient and convinced the client to deploy F5 for the protection of its applications and customers. F5 enables enterprises to simplify and secure their operations using both traditional and modern architectures. The February launch of its new software-as-a-service (SaaS) platform of its distributed cloud services enabling the delivery of security, multi-cloud networking and edge computing solutions is gaining momentum. The company is also seeing service providers provision and secure 4G cores and beginning to put 5G cores into production. F5 is set to grow from software growth engines and its SaaS offerings of distributed cloud services.
Here’s what the charts say
Let’s analyze FFIV on daily and weekly timeframes through rifle charts. The Rifle chart weekly uptrend has a rising 5-period moving average (MA) at $168.82, followed by support 15-period MA at $160.89. The 200-period weekly support stands at $166.40. The weekly stochastic is rising towards the 70 band. This would normally be a bullish looking chart were it not for the aggressive carpet pull that caused stocks to crash throughout the weekly MAs of 5, 15 and 200 periods in a single candle to try to reach a low near $159.93. Fibonacci level (fib). The bulls will have to protect the weak market structure (MSL) buy trigger at $157.43. The indicators, especially the weekly stochastic, will be updated over time. The daily Rifle chart is in the downtrend which is testing the 50-period MA support at $160.34. The daily 5-period MA resistance drops to $164.86, followed by the 15-period MA at $169.16. The daily lower Bollinger Bands (BB) are testing at $159.87. The daily Stochastic has made a full swing through the oversold 20 band. Attractive pullback levels are at the weekly MSL trigger of $157.43, $151.66, $147.54 fib, $142.43, $139.82 fib, $133.04 fib and the level of $130.42 fib.
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