雅虎香港財經 F5 (FFIV) Up 1.8% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for F5 Networks (FFIV). Shares have added about 1.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is F5 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
F5 Q2 Earnings Surpass Estimates, Revenues Fall Y/Y
F5 reported mixed second-quarter fiscal 2024 results. This Seattle, WA-based company’s non-GAAP earnings of $2.91 per share beat the Zacks Consensus Estimate of $2.88 and increased 13.8% from the year-ago quarter’s $2.53.
The bottom line was at the higher end of management’s guidance range of $2.79-$2.91 per share. The robust bottom-line performance reflects the combined impact of gross margin improvement and disciplined operating expense management.
F5’s revenues of $681 million for the fiscal second quarter missed the consensus mark of $686.9 million and declined 3.1% on a year-over-year basis. However, revenues came within the company’s guidance range of $675-$695 million.
Top Line in Detail
Product revenues (44% of total revenues), which comprise the Software and Systems sub-divisions, decreased 12% year over year to $300.2 million. The decline in Product revenues was mainly due to lower Systems sales, partially offset by increased Software sales. The company’s reported non-GAAP Product revenues were lower than our estimate of $317.8 million.
Systems revenues plunged 32% year over year to $142 million, accounting for approximately 47% of the total Product revenues. The company revealed that the decline reflects a lower level of backlog-related shipments compared with prior quarters, while the demand shows some signs of stabilization. Our estimate for Systems revenues was pegged at $157.2 million.
The negative impacts of lower Systems sales were partially offset by the improved performance of Software. Software revenues climbed 20% year over year to $159 million in the fiscal second quarter, mainly driven by 28% growth in subscription software revenues. Software revenues mainly grew on the back of renewals. Our estimate was pegged at $160.6 million.
Global Service revenues (56% of the total revenues) grew 5% to $381 million. The robust growth was mainly driven by price increases introduced in fiscal 2022. Our estimate for Global Services revenues was pegged at $367.8 million.
F5 registered lower sales across the EMEA and APAC regions, witnessing a year-over-year decrease of 6% and 9%, respectively. However, revenues from the Americas region grew 1% on a year-over-year basis. Revenue contributions from the Americas, EMEA and APAC regions were 57%, 26% and 17%, respectively.
Customer-wise, Enterprises, Service providers and Government represented 69%, 13% and 19% of product bookings, respectively.
Margins
On a year-over-year basis, GAAP and non-GAAP gross margins expanded 140 basis points (bps) and 170 bps to 79.3% and 82.1%, respectively. The improvement was driven by price realization and ease in supply-chain constraints, as well as reductions in ancillary supply-chain costs.
The company’s fiscal second-quarter GAAP operating expenses declined 9.3% to $400.3 million, while non-GAAP operating expenses decreased 6.8% to $348.8 million. GAAP operating expenses as a percentage of revenues decreased to 58.8% in the second quarter of fiscal 2024 from 62.8% reported in the year-ago quarter. Meanwhile, non-GAAP operating expenses as a percentage of revenues declined to 51% from 53% in the year-ago quarter.
F5’s GAAP operating profit jumped 32.1% to $140 million, while the margin expanded 540 bps to 20.5%. Moreover, the non-GAAP operating profit jumped 9.94% year over year to $210 million, while the margin improved 370 bps to 30.9%. An increase in the non-GAAP operating margin was primarily driven by an improvement in the gross margin and lower operating expenses as a percentage of revenues.
Balance Sheet & Cash Flow
F5 exited the March-ended quarter with cash and short-term investments of $903.4 million compared with the previous quarter’s $826 million. The company generated an operating cash flow of $386.95 million in the first-half of fiscal 2024.
During the fiscal second quarter, FFIV repurchased shares worth $100 million. As of Apr 29, 2024, F5 had $672 million remaining under its current authorized share repurchase program. The company is committed to using at least 50% of free cash flow for share repurchases.
Guidance
F5 projects non-GAAP revenues in the $675-$695 million band (midpoint of $685 million) and non-GAAP earnings per share (EPS) in the range of $2.89-$3.01 (midpoint of $2.95) for the third quarter of fiscal 2024. The non-GAAP gross margin is forecasted between 82% and 83%.
The company expects non-GAAP operating expenses between $340 million and $352 million for the fiscal third quarter. Share-based compensation expenses are anticipated in the range of $55-$57 million.
For fiscal 2024, F5 reaffirms revenue growth forecast of flat to a low-single-digit-percentage decline. Non-GAAP gross and operating margins are still anticipated in the ranges of 82-83% and 33-34%, respectively.
However, the company raised the non-GAAP EPS growth guidance range to 7-9% from 6-8% projected earlier. F5 now projects the effective tax rate for fiscal 2024 to be 20-22% from the 21-22% projected previously.
Moreover, FFIV still intends to return at least 50% of its fiscal 2024 free cash flow to shareholders through share buybacks.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, F5 has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, F5 has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
F5 belongs to the Zacks Internet - Software industry. Another stock from the same industry, Snap (SNAP), has gained 1.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
Snap reported revenues of $1.19 billion in the last reported quarter, representing a year-over-year change of +20.9%. EPS of $0.03 for the same period compares with $0.01 a year ago.
Snap is expected to post earnings of $0.02 per share for the current quarter, representing a year-over-year change of +200%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Snap. Also, the stock has a VGM Score of C.
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