If so, then why down so much?: "F5's Fiscal First Quarter Financials On Fire!
John F. Powers (415) 693-3314 john_powers@rsco.com
Evren Dogan (415) 248-4705 evren_dogan@rsco.com
Robertson Stephens Robertson Stephens
F5 Networks, Inc. FFIV $133.50 1/26/00
Industry: Networking Software John F. Powers (415) 693-3314
Change Yes/No Was Is Evren Dogan (415) 248-4705
Rating: No BUY FY Sep 1999A 2000E 2001E
EPS FY99A: Actual ($0.26) 1Q($0.15) $0.18 A $0.25
EPS FY00E: Yes $0.64 $0.77 2Q($0.20) $0.18 E $0.30
EPS FY01E: New $1.28 3Q($0.10) $0.19 $0.34
4Q $0.11 $0.21 $0.39
52-Wk Range: $160.50-$10.13 FY EPS($0.26) $0.77 $1.28
Shares Outstanding (MM) 23.1 P/E NMF NMF 104.5x
Market Cap ($MM) $3,079 CY EPS($0.01) $0.83 NA
10-DayAvg Trading Vol (000) 751 Revs ($M) 1999A 2000E 2001E
BkValue/Share $3.1 1Q $2.7 $19.2 A $28.8
CY 1998 ROE NA 2Q $3.8 $21.2 E $31.9
Price/Book Value: 43.8x 3Q $7.6 $23.5 $35.3
Net Cash/Share $2.6 4Q $13.8 $26.1 $39.0
Div/Yld: NM Year $27.8 $90.0 $135.1
3-Yr Sec Growth Rate: 100% EqtyMktVl/Rv110.6x 34.2x 22.79558
Key Points:
** The company reported outstanding revenue and earnings results. Total
revenues for Q1:F00 grew sequentially by 39.3% to $19.2 million, an increase
of 611.4% over Q1:99 revenues. Pro-forma EPS of $0.18 was seven cents higher
than EPS of $0.11 in Q4:99 and $(0.15) in the year-earlier quarter. Revenue
was higher than our estimate by $4.5 million, while EPS was higher than our
estimate by six cents.
** Strong customer growth and strong financials highlighted the quarter. F5
added 425 new customers this quarter bringing the total number of customers
up to 1175. F5 also reported strong revenue growth, improved operating and
net margins, and strong cash and deferred revenue growth.
** We are raising our estimates to reflect business strength. We are increasing
our F2000 revenue estimate from $69.9 million to $90.0 million and our F2000
EPS estimate from $0.64 to $0.77. We are establishing new FY2001 revenue
estimate at $135.1 million and EPS at $1.28.
** F5's valuation appears attractive. Outstanding revenue momentum, overall
financial strength and upside to our estimates should drive continued
investor enthusiasm. F5 is trading at 30.9x our estimated CY2000 revenues
and 20.1x CY2001 revenues. We rate the stock a Buy.
HIGHLIGHTS IN Q1:00
** Strong customer growth. F5 added 425 new customers this quarter bringing the
total number of customers up to 1175. At the end of Q4:99, F5 had 750 total
customers and at the end of Q3:99, they had 500. New customers included
American Airlines, Federal Reserve Bank, Home Depot, Washington Post,
Ernst&Young, Samsung and WalMart.
** International revenue growth. International revenues grew to 11.8% of
revenues up from 8.2% last quarter. F5 almost doubled its service and sales
staff in Europe and Asia Pacific in Q1:FY00 and sold its first product in
Singapore. Management expects international revenues to represent
approximately 25% of revenues over the next 8-12 months.
** Strong financials. Outstanding revenue growth, well managed expenses and
strong balance sheet resulted in strong financial results. Revenue grew due
to additional customers, strong repeat sales and increase in international
sales. OEM revenues, which have higher margins, decreased as a percentage of
revenue bringing gross margins down. F5 also reported improved operating and
net margins, and strong cash and deferred revenue growth.
** F5 signed a strategic agreement 3Com this quarter, extending F5's channel
reach. 3Com will first resell F5's traffic management products and next
integrate F5's products with for its CoreBuilder 9000 family of switches.
This will let 3Com offer its customers server load balancing solutions. For
F5, the 3Com customer base represents the addition of a highly synergistic
new channel. Last quarter, F5 had signed a similar agreement with Extreme
Networks (EXTR $96 3/16).
** F5 renewed and expanded its relationship with Exodus this quarter. The new
agreement will have F5 provide fully managed load balancing services to
customers located in the Exodus global network of Internet Data Centers.
Exodus and F5 already have over 300 joint customers. Exodus is F5's largest
customer and represented 24.2% of F5's total revenues this quarter, up from
23.1% last quarter. Exodus was F5's only 10% customer.
** F5 signed up 28 additional resellers including Qwest Communications in the
quarter.
** F5 announced the release of version 2.0 of its 3DNS Controller in Q1:FY00.
This new version has the capability to adjust load balancing decisions and
operations based on customer defined metrics.
REVENUE ANALYSIS
** Product licenses accounted for 85% of total revenue while services account
for 15% (vs. 84%/16% last quarter). Service renewal rates exceeded 80%
similar to last quarter. Both service revenue and renewal rates were
consistent with management expectations. For North American revenue, direct
channel represented 36% of revenues while indirect represented 38% of
revenues. Last quarter, there was an even split between direct and channel
sales.
** International revenues grew to 11.8% of revenues up from 8.2% last quarter.
Management expects international revenues to represent approximately 25% of
revenues over the next 8-12 months.
** OEM revenues, which have higher margins, decreased as a percentage of
revenue this quarter bringing gross margins down. OEM revenues were 2.5% of
total revenues this quarter, down from just under 6% last quarter.
** F5's three new products contributed 12.5% of total revenue, up from 10.4%
last quarter. New products are meeting management expectations in early
introductions.
** Exodus was F5's only 10% customer. Exodus is F5's largest customer and
represented 24.2% of F5's total revenues this quarter, up from 23.1% last
quarter.
OPERATING ANALYSIS |
