It has been about a month since the last earnings report for F5 Networks (FFIV Quick QuoteFFIV - Free Report) . Shares have added about 4.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is F5 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

F5 Networks Q3 Earnings & Revenues Beat Estimates

F5 Networks reported strong third-quarter fiscal 2022 results, wherein both the top and bottom lines surpassed the respective Zacks Consensus Estimate.

The Seattle-based company’s non-GAAP earnings of $2.57 per share beat the Zacks Consensus Estimate of $2.23. Although the bottom line declined 6.9% from the year-ago quarter’s $2.76 per share, the figure came in way higher than management’s guided range of $2.18-$2.30 per share.

During the reported quarter, F5 Networks witnessed a 3.5% surge in its revenues amid a global chip shortage scenario in the semiconductor industry. The company’s non-GAAP revenues were $674.5 million, which surpassed the Zacks Consensus Estimate of $667.4 million. The top line came in higher than $670 million — the mid-point of the guided range of $660-$680 million.

Top Line in Detail

Product revenues (48.4% of total revenues), which comprise Software and Systems sub-divisions, increased 5% year on year to $326.5 million. Software sales jumped 38% year over year to $179 million, accounting for approximately 54.9% of the total Product revenues. However, System revenues slumped 18% to $148 million, making up the remaining 45.4% of the total Product revenues. This downside was due to the ongoing global chip shortage.

Global Service revenues (51.6% of total revenues) grew 2% to $348 million.

F5 Networks registered sales growth across the Americas and APAC regions, witnessing a year-over-year increase of 5% and 15%, respectively. Meanwhile, the company registered a 7% decrease in sales growth from the EMEA region. Revenue contributions from the Americas, EMEA and APAC regions were 57%, 23% and 19%, respectively.

Customer-wise, Enterprises, Service providers and Government represented 70%, 18% and 12% of product bookings, respectively.

Margins

GAAP and non-GAAP gross margins contracted 80 and 90 basis points (bps) to 80.6% and 83.2%., respectively.

GAAP and non-GAAP operating expenses went up by 0.5% and 5.1%, respectively, to $436.3 million and $367.1 million. F5 Networks’ GAAP operating margin expanded 110 bps to 15.9%, while non-GAAP operating margin contracted 170 bps to 28.8%.

Balance Sheet & Cash Flow

F5 Networks exited the June-ended quarter with cash and short-term investments of $738.4 million compared with the previous quarter’s $887.1 million.

During the fiscal third quarter, the company generated $71 million of operating cash flow compared with $127 million reported in the previous quarter. The operating cash flow remained under pressure due to strong multi-year subscription sales, which impacted the cash collection process.
In the first nine months of fiscal 2022, F5 Networks operating cash flow totaled $288.3 million.

F5 Networks repurchased shares worth $250 million during the quarter reported.

Guidance

F5 Networks projects non-GAAP revenues in the $680-$700 million (mid-point of $690 million) and non-GAAP earnings per share in the $2.45-$2.57 band (mid-point of $2.51) for third-quarter fiscal 2022.

For fiscal 2022, F5 Networks did not provide any outlook for total revenue growth, but it provided guidance for global services revenue growth, which is estimated to be in the 1.5-2% band. The company expects an increase in software sales to remain in line with its prior guidance of 35-40%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 18.91% due to these changes.

VGM Scores

Currently, F5 has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise F5 has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

F5 is part of the Zacks Internet - Software industry. Over the past month, Twitter , a stock from the same industry, has gained 1.3%. The company reported its results for the quarter ended June 2022 more than a month ago.

Twitter reported revenues of $1.18 billion in the last reported quarter, representing a year-over-year change of -1.2%. EPS of -$0.08 for the same period compares with $0.20 a year ago.

Twitter is expected to post earnings of $0.06 per share for the current quarter, representing a year-over-year change of +111.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -3.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Twitter. Also, the stock has a VGM Score of F.