By Senad Karaahmetovic
Software company F5 Networks (NASDAQ:FFIV) offered soft guidance to send its shares more than 7% lower.
The company reported adjusted EPS of $2.53 on revenue of $703.2 million for its fiscal second quarter, beating the consensus for a profit of $2.42 per share on revenue of $698.9M. Overall, revenue increased by 11% year-over-year, fueled by a 14% jump in net product revenue.
“We delivered 11% revenue growth in our second quarter as a result of stronger than expected systems shipments and strong global services performance,” said François Locoh-Donou, F5’s president and CEO.
“While customer spending remains pressured by macro-economic uncertainty near term, we are differentiated in our ability to help customers tackle the significant challenges ahead, including simplifying their hybrid and multi cloud application environments.”
“Macro-economic uncertainty” was also reflected in the FQ3 guidance with FFIV expecting to report EPS of $2.84 on revenue of $700M (the midpoint). Analysts were looking for an EPS of $3.06 on revenue of $747M.
The company also said it is taking actions to cut opex, including 620 job cuts, or 9% of the total workforce.
“Given the persistent macro uncertainty and its impact on customer spending, we now expect low-to-mid single-digit revenue growth in fiscal year 2023 with non-GAAP operating margins of approximately 30% and non-GAAP earnings growth of 7% to 11%,” the company added.
In response to the soft guidance, Barclays analysts slashed the rating on FFIV stock to Equal Weight from Overweight with the price target of $140 (down from $166).
“Mar-Q results were in-line overall, but the meaningful misses in software continue. While we like the GM of 80%+, recurring revenues of 65%, and valuation, we no longer see upside to the shares as growth has been lacking and software inconsistent. We lower estimates and target,” they said.
KeyBanc analysts are more positive as they reiterated an Overweight rating despite macro pressures.
“We reiterate our OW rating on F5 despite NT macro headwinds as we believe the Company remains well positioned to benefit from hybrid/multi-cloud secular trends. We lower our PT to $179 (from $182), 10x EV/C23E EBITDA, in line with the three-year NTM historical average, on slightly lower estimates as GM expansion (due to redesigns and price increases) and opex cuts offset most of the top-line pressure due to macro pressures NT,” they wrote in a note.