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by: chuck_mirho
5/9/00 9:39 pm
Msg: 32432 of 32436
[had to cut in places]
F5 Networks
Fallen but not Forgotten May 10, 2000 -
By now it's a familiar story of a hot new technology stock that danced with the stars last year only to crash back to earth in the
tech wreck of 2000. But F5 Networks (Nasdaq:FFIV) is particularly noteworthy in that it is a profitable network infrastructure
company delivering amazing growth, yet its stock has acted more like a second class dot-com retailer plunging 80% from its
highs. There is plenty of valid concern about competition from Cisco Systems especially after its deal to acquire Arrowpoint last
week, but F5 has responded with upbeat comments about its business and a new line of products unveiled Monday.
F5 makes Internet traffic and content management products that improve the performance and reliability of web-based
businesses and applications. This company is parked in front of a huge opportunity that is difficult to quantify, yet it's hard to
understate the potential importance in the Internet economy going forward.
The broad imperative addressed by F5 is driven by two key issues. The first is the soaring amount of traffic on the Internet and
corporate networks. The second is the fact that the Internet has matured beyond an entertaining novelty to become the medium
for mission critical business functions and applications. This naturally includes the online media and e-commerce "dot-com"
companies who want their sites accessible and responsive, but it also involves industries that now use intranets as well as the
web for various enterprise applications like HR, supply chain management or collaboration on product design and
manufacturing.
As dot-com companies "scale" to fulfill their promise and as traditional businesses increasingly rely on the Internet for
mission-critical applications, the need for F5's products is clear. Customers include Exodus Communications (Nasdaq:EXDS),
MCI WorldCom (Nasdaq:WCOM), InfoSpace (Nasdaq:INSP) and Intuit (Nasdaq:INTU).
Estimates on market size are hard to produce because many companies incorporate traffic management into network switches,
so it's not clear how to break it out. Nonetheless, the market is big enough that Cisco Systems offered $6 billion to acquire
ArrowPoint last week, a company expected to have just $60-$65 million in sales this year. Cisco said it sees this market
growing to $2 billion by 2003 from $500 million in 2000. F5 Networks is racking up sales more than double ArrowPoint's, with
revenues of $23.6 million in the latest quarter and calendar year 2000 estimates in the $120 million area. That compares to
revenues of less than $5 million in FY98 to $27.8 million in FY99. As astonishing as that growth is, some cited F5's slower
growth rate compared to competitors as a reason for the plunge after its latest earnings report. The company gave guidance on
sequential quarterly sales growth of mid to low-teens, which F5 said is actually higher than its previous guidance. Analysts
estimate F5 will earn $0.74 per share in FY2000 and $1.04 in FY01.
F5 has clearly fallen out of favor and anytime there is so much negativity toward a stock we often hear time-tested maxims like
"Don't try to catch falling knives" or "Don't fight the tape." But given the enormous market opportunity in Internet traffic and
content management products and F5's impressive execution to date, at some point this stock has to become attractive again as
a fast-growing,
profitable Internet infrastructure play.
- James Hale |
