F5 Inc. (FFIV, $210.23): “Up in the (F5) Clouds”
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.
Summary
- 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.
My
Takeaway
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.
