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F5 Networks Rides on Cloud & Security, Competition Rife

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On Dec 27, we issued an updated research report on F5 Networks Inc. (FFIV - Free Report) .

The Seattle, WA-based company, which provides products and services to manage Internet traffic worldwide, is benefiting from increasing demand for cloud and security offerings.

Notably, F5 Networks has beaten the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 6.45%.

The Zacks Consensus Estimate for the ongoing quarter remained stable at $2.53 over the past 30 days.  Management also provided optimistic guidance for the full fiscal 2019.

We believe that impressive results and guidance will help sustain the stock’s momentum. Notably, shares of F5 Networks have gained 22.3% year to date against the industry’s decline of 0.6%.



Cloud and Security Strength Aid Growth

Software products are witnessing an upside, which can be attributed to deployments in public (fastest growing part) and private cloud, driven by the surge in demand for security in the multi-cloud environment.

F5 Networks is also benefiting from acceleration in Enterprise License Agreement and Virtual Edition subscription software deals. This segment grew 19% year over year in the last quarter of fiscal 2018, and contributed 17% to product revenues.

Moreover, partnerships with Amazon (AMZN - Free Report) AWS, Microsoft (MSFT - Free Report) Azure, VMware vCloud Air and many others to provide cloud-based application services and solutions is a key growth driver.

The company projects software growth to be in the 30% to 35% range in 2019-2020. Strong momentum in ELA, Cloud Edition and new products F5-as-a-Service and Cloud-Native App Services, which are scheduled to be launched in 2019, are expected to be key growth drivers for software. This projection buoys our confidence in the company’s near-term as well as long-term performance.

Moving to security, the company expects Advanced Web Application Firewall and SSL orchestration capabilities to be the two meaningful growth drivers in standalone security next year.

Combined with long-standing partnerships with the likes of FireEye, which has helped beef up F5 Networks’ cyber security suite, we believe that the company’s competitive dynamics in the security market is also quite strong.

Competition Remains a Concern

Cisco (CSCO - Free Report) represents the greatest competitive threat to F5 Networks, given the dominance of the former in the overall networking market. Cisco has tremendous engineering and marketing resources at its disposal.

Although F5 Networks’ technology has been able to hold its leading position for many years, Cisco could potentially pose further threat if it invests more aggressively in the technology. In addition, Citrix Inc., Juniper Networks, Checkpoint Systems, Barracuda Networks also have strong technology platform that could pose a more significant competitive threat on improved execution.

F5 Networks currently has a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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