F5 Networks (FFIV, Financial) delivered one of its strongest quarterly performances recently, surpassing Q4 EPS and revenue expectations and returning to positive year-over-year growth after three quarters of decline. The company also provided optimistic 1Q25 and FY25 EPS and revenue guidance, generally exceeding analysts' forecasts. Additionally, F5 Networks authorized an extra $1.0 billion for its stock repurchase program, reflecting its positive outlook for FY25.
Key highlights from the company's FY25 guidance include:
- Projected revenue growth of 4-5%, up from flat in FY24, assuming a stable macro environment. This growth stems from company-specific factors, particularly its shift from a hardware-focused to a software-centric business model.
- In FY17, software made up just 13% of total revenue. Today, it accounts for about 58% of total product revenue, with subscriptions representing 85% of total software revenue, up from 20% in FY17. This shift has diversified revenue streams, reduced volatility, and improved revenue predictability, aligning with the hybrid multi-cloud trend.
- Software revenue surged by 19% to $228 million, a significant improvement from the previous quarter's 3% growth. The company anticipates substantial software renewal opportunities, providing strong visibility into FY25.
- On the hardware front, Systems revenue decreased by only 3%, a notable recovery from the 16% drop last quarter and the 32% decline in Q2. FFIV expects Systems revenue to grow by mid-single digits in FY25 after a 20% decline in FY24, driven by customers refreshing older systems and winning more deals against competitors.
- Long-term, FFIV is optimistic about AI growth opportunities, expecting to benefit from the data generated by AI model training, which requires high-performance traffic management technologies. The company is also focusing on web application firewall and API protection, with current deployments addressing these needs.
After a challenging period in late 2023 and early 2024, F5 Networks has successfully turned the corner, aided by a stable macro environment and a shift to a software-centric model. With the rise of AI technology, the company is well-positioned to sustain this momentum and achieve stronger growth in the future.
