By: Max Kruszeski, AIM Student at Marquette University
Disclosure: The AIM International Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in this article.
- F5, Inc. (NASDAQ: FFIV) is a provider of multi-cloud security and application delivery. FFIV connects business, applications and customers, allowing them to reach their full potential in the next generation of tech security, infrastructure and solutions.
- The company operates out of three segments; services (52% of total revenue), systems (29%), and software (19%). The company mainly operates in the United States (53% of total revenue), but also has operations in China, Japan, Germany and others.
- Although FFIV’s has sustained a recent price slide from ~$240 to ~$210, the company still shows upside.
- The company continues to beat guidance and grow their cloud software platform posting 47% YoY growth vs expectations of around 35%.
- Cloud provider partnerships (e.g. AWS) and 2021’s acquisitions of Volterra Inc. and Threat Stack, Inc. and 2019’s acquisition of Shape, ensures FFIV’s ability to grow and expand their software platform.
Key points: As a result of the COVID-19 Pandemic, companies face more and more pressure to integrate a cloud platform that connects their business to their customers and tech applications. The cloud communications industry will continue to see growth. The market is expected to grow from $4,632.3 million in 2021 to $22,408.5 million by 2028; representing a 25.3% CAGR in 2021 through 2028.
Because of this, FFIV has focused their business efforts toward growing and expanding their cloud platform, and has seen success. FFIV’s total net revenues increased 10.7% in fiscal year 2021 from fiscal year 2020, compared to an increase of 4.8% in fiscal year 2020 from the prior year. This growth was driven by the 47% YoY software revenue increase, and more specifically from the addition of the software-as-a-service product offerings through the Shape acquisition and FFIV’s subscription-based offerings, which include software sold via their flexible consumption program or multi-year subscriptions.
FFIV’s recent acquisitions are also set to provide them success in the near future. In 2021 FFIV acquired Volterra Inc. a SaaS platform that helps detect threats more rapidly and reduce neutralization times. This, along with the combination of the Shape, a leader in online fraud and abuse prevention, added protection against automated attacks, bots, and targeted fraud, Together, F5’s portfolio provides maximum protection and reduced risk for all applications across data centers, cloud, and the edge.
FFIV has also seen success with their enterprise customers, with 71% of product bookings coming from enterprise customers, followed by Service Provider (15%) and Government (14%). With increased security through acquisitions, and FFIV’s investment into their cloud software platform FFIV will continue to grow and beat guidance.
What has the stock done lately? Since being added to the portfolio in March of 2020, FFIV has seen a 73.87% increase in its share price. The stock has recently slid in the last 3 months as FFIV is down 14% since January 1st. The 52-week H-L is $174.34-$249.00, the stock has suffered along with other tech stocks amidst the recent COVID-19 pandemic, Russia-Ukraine conflict and rising interest rates, however FFIV will look to regain some positive momentum coming into their next earnings call coming up next month.
Past Year Performance: FFIV is up .66% in the past year, obviously, this is underwhelming, however, the past year has been riddled with macroeconomic setbacks bringing share price down every time FFIV seems to gain some momentum.
Due to FFIV’s ability to provide, grow, and improve their cloud-based software system will continue to drive FFIV’s price. Their recent acquisitions and the integration of these companies allow for FFIV to provide a more secure SaaS. With earnings set to release next month, it’s likely that FFIV will beat guidance. If FFIV can continue to acquire market share from a surging cloud communication market, they are sure to be in a good spot moving forward. Analysts estimate FFIV shares could reach up to $280. With this, it is recommended that FFIV continue to be held in the AIM Small Cap Portfolio.