That would appear to be the case with F5 Networks (Nasdaq:FFIV). F5 is a great company and a leading provider of network traffic management products and services. What's more, the company's earnings/guidance miss was not all that bad. And yet, the stock has recently endured a sharp selloff as investors suddenly question the wisdom of paying more than 12 times trailing revenue for a company whose torrid growth may be cooling.
The Quarter That Was
As suggested, F5's fiscal first quarter was really not that bad. Revenue rose 6% sequentially and almost 41% year-on-year, with product revenue leading the way with 44% growth over last year. Gross margin improved (and stand at an extremely impressive 82.6% level), while operating income grew 7% sequentially (69% YOY) and operating margin improved to over 38 percent. (For more, see Zooming In On Net Operating Income.)
Now the bad news. This quarter broke a streak of six beat-and-raise quarters. Book-to-bill for the quarter was below one. Worst of all, the company gave guidance for the next quarter that suggests sequential revenue growth of 2-4% and a midpoint 1% below the prior consensus.
The Road Ahead
Again, for a normal company these results would not be bad. But F5 is not a normal company or a normal stock. F5, along with Riverbed (Nasdaq:RVBD) and Blue Coat (Nasdaq:BCSI) has been basking in a "cloud premium" for at least the last six months - so much so, in fact, that the average analyst price target on F5 shares has more than doubled from its July level. That's a lot of optimism for any company to redeem.
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