) a leading provider of integrated Internet traffic and content
management solutions, pre-announced negative results and guidance
last week ahead of its April 24 earnings report. This surprise for
investors caused shares to gap down 20% from $90 to $72 on April 5,
trading over 12 million shares in the drop, nearly 8X the average
For 2Q2013, F5 now expects revenues to be $350.2 million,
significantly down from previously expected range of $370-$380
million. Management blamed slowing sales in North America and
Europe, Middle East and Africa for the dismal performance. From end
market viewpoint, soft Telco and U.S. Federal bookings hampered
Lower revenues have also pulled down earnings per share
expectations. F5 now expects GAAP earnings per share in the range
of 79-80 cents, down from previously expected range of 93-96 cents.
Non-GAAP earnings are expected to be within $1.06 and $1.07 per
share, down from prior expectation range of $1.21-$1.24.
In its earnings call, F5 expressed its concern about the macro
uncertainties that could affect near-term fundamentals. Management
also remained concerned about an expected budget cut from telecom
Slashing the Estimates
Wall Street analysts who cover the company wasted no time in the
past few days "adjusting" their revenue and EPS projections. The
lowering of estimates was sufficiently deep and widespread to kick
FFIV down to a Zacks #4 Rank (Sell) last week and then to a #5
(Strong Sell) this week.
Since a good picture can tell even a bad story quickly, below is
the Zacks proprietary Price & Consensus chart which plots
annual earnings estimates against stock price.
You can see the immediate hit that the already-flat-lined 2013 and
2014 estimates took on the company's news. The kinks downward in
those lines represent full-year EPS cuts of at least 11% for each.
The Distant, Cloudy Future
F5 hardware and systems are designed to improve the availability
and performance of mission-critical Internet-based servers and
applications. The company's products monitor and manage local and
geographically dispersed servers and intelligently direct traffic
to the server best able to handle a user's request. Their primary
goal is to help prevent system failure and provide timely responses
to user requests and data flow.
One area of expansion is in the field of "software-defined
networking" (SDN) is an approach to networking in which control
moves from hardware to a software application called a controller.
A network administrator uses these controllers to direct and
regulate network traffic from a centralized hub.
This minimizes the use of different and expensive switches for
controlling web-trafficking and helps in uninterrupted traffic
flow. Another important factor for choosing SDN technology is that
it is applicable for both private and public cloud infrastructures.
The SDN approach to networking is gaining popularity among key
networking players such as
Bottom line: While F5 is a key player in the technologies of
Internet traffic flow, their revenue and earnings outlooks have hit
a major traffic jam. Until the congestion clears and analysts start
raising estimates again, its probably best to find another route.
Kevin Cook is a Senior Stock Strategist with
BROCADE COMM SY (BRCD): Free Stock Analysis
CISCO SYSTEMS (CSCO): Free Stock Analysis
F5 NETWORKS INC (FFIV): Free Stock Analysis
JUNIPER NETWRKS (JNPR): Free Stock Analysis
To read this article on Zacks.com click here.