F5 Needs Some "Creative Destruction"

One of the hallmarks of the best-run companies is that they’re not the last to leave a party; well-run companies recognize that self-obsolescence and “creative destruction” are often essential parts of maintaining a healthy business over the long term. To that end, I would note that companies like Cisco (CSCO), Palo Alto (PANW), and VMware (VMW) often are building toward the next big thing while the current big thing is still generating meaningful cash flow.

That has not been the case, in my opinion, with F5 (FFIV). Although there’s nothing wrong with F5 getting everything they can out of the fading application delivery controller (or ADC) opportunity, I believe the company has not gone far enough, fast enough, to position the company for ongoing growth in the new cloud and hybrid cloud enterprise world.

These shares are up a little from when I last wrote about them, with a solid double-digit rally off the October lows, but I cannot muster much enthusiasm for the shares again. While I expect F5 to generate ample cash flow for some time, I really would like to see management use the company’s balance sheet to acquire more growth and relevance in the emerging networking world.

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F5 Needs Some "Creative Destruction"