MKM: F5 Networks' Q3 Results Indicate Mixed Shift To Software

F5 Networks, Inc. (NASDAQ: FFIV) delivered overall healthy results for the third quarter. While underlying organic shift toward Software during the quarter is a positive, the EPS estimates for 2019 and 2020 have been lowered due to investments related to NGINX, according to MKM Partners.

The Analyst

MKM Partners’ Michael Genovese maintained a Neutral rating on F5 Networks, while reducing the price target from $175 to $164.

The Thesis

F5 Networks reported third-quarter total revenues at $563 million, including $5 million from the NGINX acquisition which it closed on May 8, Genovese said in the note.

Product revenues also grew 4% to $249 million. Organic Software Product revenues rose 79%, while total Software revenues grew 91%. The analyst considers this as “an important positive inflection” for the company’s Software sales performance.

Systems Product revenues fell 11% to $181 million, with more customers shifting to Software Products.

F5 Networks guided to fourth-quarter revenue of $577 million-$587 million, which includes a contribution of $8 million from NGINX. Genovese mentioned that the company plans to invest heavily in an integrated F5/NGINX platform targeting the DevOps community and expects to release this in about six months.

The analyst reduced the EPS estimates for 2019 and 2020 from $2.78 to $2.56 and from $11.32 to $10.74, respectively, to reflect the NGINX investment.

Price Action

Shares of F5 Networks are down 0.65% at $147.7 at the time of publishing on Thursday.