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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: Muzzy who wrote (79565)	12/17/1999 10:26:00 AM
From: Tim Luke	Read Replies (1) \| Respond to of 90042

Stock of the Day Dec 17, 1999 F5 Networks: Network Traffic Management is Hot It's tough to stand out in a year of unprecedented IPO moonshots, yet F5 Networks does. The company went public in June at $10 and is currently trading at $115, giving it a market cap of $2.16 billion. For that to happen to a company with just $28 million in sales, there's obviously something very big about F5's prospects and the market it addresses. F5 makes Internet traffic and content management products that improve the performance and reliability of web-based businesses and applications. Yup, that's a hot one all right. This stock traded as high as $160 so it has even cooled off somewhat, perhaps as the lockup expired or perhaps just as cooler heads prevail. Regardless, this company is parked in front of a huge opportunity that is difficult to quantify yet hard to understate its potential importance in the Internet economy going forward. The broad imperative addressed by F5 is driven by two key issues: the soaring amount of data traffic on the Internet and corporate networks; and 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. Traffic management solutions monitor and balance the load on servers and other devices by determining which server can best respond to a user request and direct it accordingly, ensuring optimum response time for users. These products also improve fault tolerance (if one server crashes, traffic is routed to the next best server) and allow geographically dispersed server architecture for better performance. F5's also offers a product that helps network managers monitor and analyze their network traffic. Another F5 product controls file-based content and application management for publishing across dispersed server networks. 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 - news) , MCI WorldCom (Nasdaq:WCOM - news) , InfoSpace (Nasdaq:INSP - news) and Intuit (Nasdaq:INTU - news) . As an investor the question then how big is this market and what's the competition like. F5's competes with several companies in different ways, but they include Radware (Nasdaq:RDWR - news) , Foundry Networks (Nasdaq:FDRY - news) , and Alteon WebSystems (Nasdaq:ATON - news) . Heavyweights like Cisco Systems (Nasdaq:CSCO - news) and Cabletron Systems (NYSE:CS - news) are also involved in this market. Unlike the others whose traffic management solutions reside inside network switches, F5 and Radware are in a separate appliances, making the purchase decision for customers independent of other hardware issues and in the case of F5, centralizing the administration of network management. 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 potentially so huge that many investors have taken to focusing on company growth rates and valuation based on multiples to expected revenues relative to competitors. F5 Networks has grown revenue from less than $5 million 1998 to $27.8 million in 1999, and analysts see that figure headed for around $80 million in 2000. That is astonishing growth. F5 also surprised analysts by reporting a profit of 11 cents per share in the latest quarter, so FY2000 is expected to bring EPS of between $0.40 to $0.61. Analysts are predicting earnings growth of 80%-100% a year in the next three years.