The other thing was that statement from management that the growth rate shown in this report won't be sustained. That bothered me but I waited for a split and when that didn't happen, you had to bail.
Here's another blurb
F5 Networks Reports 1Q00: Downgrade to HOLD Todd Truitt
F5 Networks NASDAQ:FFIV
Communications | Internet
Quote | News | Snapshot | Charts | SEC | Ratings
Jan 26 2000
Earnings Highlights
Positives
Revenue growth is accelerating at an exponential rate, topping 611% YoY growth in the most recent quarter.
Earnings for 1Q00 (ending in December) beat expectations of $0.12 with actual EPS of $0.18.
Negatives
F5 management revealed that revenues should slow starting next quarter.
F5 Networks Profile
F5 Networks (NASDAQ: FFIV) is a leading provider of integrated Internet traffic management solutions designed to improve the availability and performance of mission-critical Internet-based servers and applications. In layman's terms, its products monitor and manage Internet traffic by intelligently directing Internet traffic to the server best suited for the user's request. The company's ultimate goal is to eliminate network system failures, and provide timely accurate responses and data flow. F5's customers are Internet service providers, and e-commerce companies that experience a large amount of traffic flow. They currently have over 1,175 customers worldwide and maintain strong relationships with such well-established companies as Exodus, PSINet, MCI WorldCom, StarMedia, Microsoft, Motorola, BankAmerica, and more.
Earnings and Revenue Growth
F5's revenues and earnings significantly exceeded all analyst expectations last quarter and the quarter before, the first two full quarters of operations after its IPO on June 4, 1999. 1Q00 earnings expectations were approximately $0.12 per share while the company reported actual earnings at $0.18. However, an even more astonishing is the company's year over year growth of revenues. 1Q00 revenues were 711% greater than the year earlier, while 4Q99 revenues grew 621% compared to the year earlier (notice the accelerating growth rate). While these growth rates are impressive, they are growth rates of the past. Management warned investors of slowing growth rates in the coming quarters, on yesterday's conference call. This gives us some reason for concern.
Risks
In any new high tech industry, maintaining a competitive advantage is crucial to the success of a business. Currently, F5 has a favorable competitive landscape. Over 20% of all F5 bids given to potential customers are uncontested by competitors. Additionally, after speaking with several major customers of F5, it is evident that few traffic management companies can compete with their technology. However, just in the past few months alone several traffic management companies have gone public, including Radware LTD, Alteon, and Foundry Networks. This will no doubt lead to an increase in competition in the near future. Furthermore, this increase in competition should produce some pricing pressure. Management concurs.
Conclusion
While F5 blew out 1Q00 expectations, they admitted that they could see slower growth starting in the next quarter. This is not what investors wanted to hear…especially the large institutions (probably why the stock was down 19 points today). The sex appeal in F5, up until now, has been its phenomenal growth rate. With F5's growth in question, we do not feel comfortable maintaining our BUY rating. We feel that there are better plays in this industry right now, namely Radware (NASDAQ: RDWR) and Alteon (NASDAQ: ALTN), who can maintain outrageous growth rates. We are downgrading F5 to a Hold
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