F5 Networks Reaches $128 With Shift To Cloud

NEW YORK (Trefis) -- F5 Networks (FFIV), the application delivery heavyweight, helps companies simplify the management of their data-center operations and delivery of services across diverse data center resources. It has pioneered the load-balancing technology that distributes Internet traffic evenly across multiple servers, making them look like a single device. Optimizing growth in the application delivery network market, F5 has almost doubled its revenue and profits in the last five years.

The stock has lost around 20% of its market value in the last month. However, with a robust pipeline of future sale opportunities, we believe the company's leadership to be as strong as it has ever been. Here, we analyze certain prominent trends that shape the future prospects and in turn support our valuation of $128 for the company, which stands at a premium of 20% to the current market price.

See our complete analysis for F5 Networks here.

Shift to Cloud-Based Services and Storage

As organizations transform their own data centers, they are increasingly turning to external, third-party cloud providers for services and storage to lower their capital and operating costs. To accommodate the dynamic needs of their clients, cloud providers are building large virtualized data centers to host a constantly changing mix of on-demand resources. Within the past two years, F5 has benefited from this trend in two ways:

As cloud providers have deployed its products within their data centers.

As their customers have deployed F5��s products to switch traffic quickly and easily between their own internal resources and the cloud.

Research firm Forrester projects the global market for cloud computing to increase from $41 billion in 2011 to $241 billion by 2020. F5 Networks with a current application delivery network market share of 25% could significantly leverage on this growth. We estimate its market share to rise to 38% by the end of our forecast period.

Growing Focus on Mobile Application Delivery

With smartphones and tablets replacing personal computers as engines of growth for the semiconductor industry, an increasing number of companies are shifting focus to keep up with changing consumer trends. In 2010, PCs generated 97% of consumer Internet traffic. This will be reduced to 87 percent by 2015, demonstrating the effect of devices like tablets and smartphones on the way consumers access and use the Internet.

As the number of remote workers and mobile customers increases, enterprise demand for mobile application delivery is on the rise. Employees now use a variety of mobile devices and applications supported by different browsers, so enterprises need consistent application delivery across all devices, regardless of location or other variables that can interfere with mobile delivery.

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