A month has gone by since the last earnings report for F5 Networks (
FFIV Quick Quote FFIV - Free Report) . Shares have added about 9.4% in that time frame, outperforming 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 drivers.
F5 Q4 Earnings & Revenues Outpace Estimates
F5 reported strong fourth-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 $2.62 per share beat the Zacks Consensus Estimate of $2.54. Although the bottom line declined 13% from the year-ago quarter’s $3.01 per share, the figure came in way higher than management’s guided range of $2.45-$2.57 per share.
During the reported quarter, F5 Networks witnessed a 3% increase in its revenues amid a global chip shortage scenario in the semiconductor industry. The company’s non-GAAP revenues were $700 million, which surpassed the Zacks Consensus Estimate of $692.2 million. The top line was in line with the top end of the guided range of $680-$700 million.
Top Line in Detail
Product revenues (50% of total revenues), which comprise Software and Systems sub-divisions, increased 3% year on year to $350 million. Software sales jumped 13% year over year to $172 million, accounting for approximately 49.1% of the total Product revenues. However, System revenues slumped 5% to $178 million, making up the remaining 50.9% of the total Product revenues. This downside was due to the ongoing global chip shortage.
Global Service revenues (50% of total revenues) grew 2% to $350.1 million.
F5 Networks registered sales growth across the Americas, witnessing a year-over-year increase of 6.3%. The company registered a 3% and 1.7% decrease in sales growth from the EMEA and APAC regions, respectively. Revenue contributions from the Americas, EMEA and APAC regions were 61%, 23% and 17%, respectively.
Customer-wise, Enterprises, Service providers and Government represented 66%, 13% and 21% of product bookings, respectively.
GAAP and non-GAAP gross margins contracted 220 and 230 basis points (bps) to 78.9% and 81.4%., respectively.
GAAP and non-GAAP operating expenses went up 4.2% and 8.2%, respectively, to $445 million and $378.8 million. F5 Networks’ GAAP and non-GAAP operating margins shrunk 310 and 510 bps to 15.4% and 27.3%, respectively.
Balance Sheet & Cash Flow
F5 Networks exited the September-ended quarter with cash and short-term investments of $884.6 million compared with the previous quarter’s $738.4 million.
During the fiscal fourth quarter, the company generated $154.3 million of operating cash flow compared with the $71 million reported in the previous quarter.
In fiscal 2022, F5 Networks’ operating cash flow totaled $442.6 million. The operating cash flow remained under pressure due to strong multi-year subscription sales, which impacted the cash collection process.
F5 Networks repurchased shares worth $500 million during fiscal 2022.
For fiscal 2022, F5 Networks reported revenues of $2.7 billion, indicating an increase of 3% year over year. The company reported non-GAAP earnings of $10.19 per share compared with $10.81 per share reported a year ago.
Non-GAAP gross margin contracted 130 bps to 82.6%. Non-GAAP operating expenses increased 6.6% to $1.45 billion.
Non-GAAP operating income decreased from $822.2 million a year ago to $778.3 million in fiscal 2022. Consequently, the non-GAAP operating margin contracted 270 bps to 28.9%.
F5 Networks projects non-GAAP revenues in the $690-$710 million (mid-point of $700 million) and non-GAAP earnings per share in the $2.25-$2.37 band (mid-point of $2.31) for first-quarter fiscal 2023.
For fiscal 2023, F5 Networks provided an estimate of 9-11% total revenue growth. The company expects software sales to grow 15-20%.
F5 Networks anticipates non-GAAP earnings to grow in the low-to-mid teens.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -10.85% due to these changes.
Currently, F5 has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, F5 has a Zacks Rank #3 (Hold). We expect an in-line 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, Snap (
SNAP Quick Quote SNAP - Free Report) , a stock from the same industry, has gained 7.7%. The company reported its results for the quarter ended September 2022 more than a month ago.
Snap reported revenues of $1.13 billion in the last reported quarter, representing a year-over-year change of +5.7%. EPS of $0.08 for the same period compares with $0.17 a year ago.
For the current quarter, Snap is expected to post earnings of $0.09 per share, indicating a change of -59.1% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Snap has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.