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F5 Networks (FFIV) to Acquire Volterra to Build Edge Platform

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F5 Networks (FFIV - Free Report) recently inked a definitive agreement to acquire Volterra, a privately-held edge-as-a-service platform, for a total consideration of nearly $500 million. Per the deal, the company will pay roughly $440 million in cash up front and the remaining $60 million in future consideration.

The acquisition is expected to complete in the first quarter of calendar year 2021, subject to regulatory approvals and other customary closing conditions. Post the completion of the buyout, Volterra’s leadership team will join F5 Networks in key management roles.

Acquisition Synergies

F5 Networks is creating a new Edge 2.0 platform for enterprises and service providers, in collaboration with Volterra’s technology platform. The open-edge platform will create a SaaS solution and solve the multi-cloud complexities faced by the enterprises.

Also, the platform will be unlimited in scale, by enabling all the services to run on any server, across all clouds and data centers.

The acquisition is further expected to strengthen the company’s competitive position in enterprise application security and delivery. Moreover, it expects the integration to be a major growth driver in the long haul and accelerate its total revenue growth expectations.

Therefore, the company raised its Horizon 2 (fiscal years 2021 and 2022) and long-term revenue outlook, in light of the acquisition. The company lifted Horizon 2 total revenue growth CAGR projection range from 6-7% to 7-8%. Further, it now anticipates long-term revenue growth to be in double digits, up from the previously forecasted growth of 8-9%.

Further, the company restated its commitment to buyback $1 billion worth of its common stock over the next two years, including $500 million through accelerated share buyback in fiscal 2021.

First-Quarter Fiscal 2021 Results Preview

F5 Networks also released preliminary first-quarter fiscal 2021 financial results. It expects GAAP and non-GAAP revenues between $623 million and $626 million, up from the earlier guidance range of $595-$615 million. The updated revenue guidance range is above the Zacks Consensus Estimate of $604.4 million and indicates a year-over-year improvement of 10%.

Further, the company anticipates non-GAAP software and systems revenues to grow approximately 70% and 5%, respectively, on a year-over-year basis.  Also, non-GAAP product revenue growth is expected to increase between 22% and 23%. Global services revenue growth is likely to be moderately better than flat.

Further, non-GAAP earnings per share are forecasted to surpass its previous guidance range of $2.26-$2.38. The consensus mark for adjusted earnings is currently pegged at $2.34 per share, which remained steady over the past 30 days and suggests a decline of 8.2% from the year-ago quarter’s reported figure.

Notably, the company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 6.4%.

The multi-cloud application service provider believes robust demand for its software solutions along with a resilient systems business to have aided its first-quarter performance.

Zacks Rank & Other Stocks to Consider

F5 Networks currently carries a Zacks Rank #2 (Buy).

Some other similar-ranked stocks in the broader technology sector are Jabil (JBL - Free Report) , Avnet (AVT - Free Report) and Arrow Electronics (ARW - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Avnet, Jabil and Arrow Electronics is currently pegged at 19%, 12% and 9.8%, respectively.

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