F5 Networks Plunges on Revenue Miss

NEW YORK ( TheStreet) -- Shares of F5 Networks ( FFIV) sold off in extended trading on Wednesday after the Seattle-based networking products developer came in just shy of Wall Street's revenue expectations for its fiscal first quarter and offered up a mostly in-line outlook for the current period.

That news might not initially seem so bad but after a running up more than 170% in the past 52 weeks, F5's stock is particularly vulnerable to the slightest missteps on the business side.

The stock was last quoted at $106, down 24%, on volume of roughly 4 million, according to Nasdaq.com. The volatile shares had already pulled back almost 5% since hitting a 52-week high of $145.76 on Jan. 13. F5 Networks was one of the best performing stocks in the S&P 500 in 2010, gaining more than 150%, second only to Netflix ( NFLX), which rose more than 270%.

The news was weighing on shares of some of F5's smaller competitors with Blue Coat Systems ( BCSI) losing almost 9%; Aruba Networks ( ARUN), down nearly 6%; Acme Packet ( APKT), sliding another 5%; Riverbed Technology ( RVBD), off 9%; and Juniper Networks ( JNPR), slipping 4%.

After Wednesday's closing bell, F5 Networks reported adjusted earnings of $72.2 million, or 88 cents a share, up from a year-ago equivalent profit of $41.4 million, or 52 cents a share, and ahead of the average estimate of analysts polled by Thomson Reuters for earnings of 83 cents a share.

On the top line, however, the company, whose products include applications to accelerate the loading of Web pages and manage remote access to virtual private networks, fell short with revenue of $268.9 million for its fiscal first quarter ended Dec. 31. That figure missed Wall Street's consensus view of $270.6 million.

"Coming off a very strong fourth quarter, the company achieved solid revenue and earnings growth in the first quarter of fiscal 2011," said John McAdam, the company's president and CEO, in a press release. "Product revenue was up nearly 44 percent from the first quarter of fiscal 2010, and service revenue grew more than 35 percent during the same period.

For its fiscal second quarter ending in March, F5 Networks set a non-GAAP generally accepted accounting principles earnings target of 84 to 86 cents a share with revenue projected to range from $275 million to $280 million. The current average analysts' projection is for a profit of 85 cents a share on revenue of $281.1 million in the March period.

Wall Street had some trepidation about the stock headed into the report with 20 of the 35 analysts covering the stock at either hold (17) or underperform (3) and the median 12-month price target sitting at $139.50 vs. Wednesday's regular session close of $138.78.

From a valuation standpoint, the shares carried a forward price-to-earnings multiple of around 32X into the report, compared to 30X for Citrix Systems ( CTXS), 11X for Cisco Systems ( CSCO) and 24X for Juniper Networks.
F5

Still, even one of the analysts rating the stock at hold was bullish headed into the report.

"To-date results from larger technology companies (Intel, IBM) indicate enterprise spending in general remains robust -- which we believe bodes well for data center spend and ultimately F5," said Sid Parakh of McAdams Wright Ragen in a note to clients earlier on Wednesday. "As such, we believe that F5 could deliver upside to our estimate and issue robust 2Q guidance.

Valuation was the main concern for Parakh, who outlined the challenge that F5 was facing after running up so high in a way that underscores why the stock is being hit so hard in late trades.

"Going forward, rich valuation multiples (~39x FY11 EPS) imply that F5 needs to continue to beat-and-raise to help sustain/grow valuation from current levels, in our opinion," the note reads.

Judging by the action after the bell -- the shares have gone as low as $105.38 -- Parakh's price target of $110 made not need much tweaking after all.

-- Written by Michael Baron in New York.

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