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"

F5's Headwinds Aren't Letting Up

When I last wrote about F5 Networks (NASDAQ:FFIV) in the summer of 2016, I was skeptical that the company's new product launch/refresh cycle was going to deliver as much growth as the bulls hoped. So far, that call looks to be working out. Although the shares are up around 5% since that last article, that performance lags that of the NASDAQ and a broad peer group of companies like Cisco (NASDAQ:CSCO), Juniper (NYSE:JNPR), and A10 (NYSE:ATEN). What's more, numbers have been heading lower as the expected product growth has been slow to arrive.

I continue to believe that F5 is dealing with some troubling secular headwinds. Cloud service providers like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are improving their ADC/load balancing services, and companies like Cisco are tough competitors in security. While I do still think there are opportunities out there for F5, I worry about how the shares will perform without stronger revenue growth. The implied return at this price isn't bad, but I think there could be further revisions to estimates before this cycle is over, and low-growth/high-margin tech stocks can be frustrating to own.

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F5's Headwinds Aren't Letting Up

F5 Networks - Where Do We Grow From Here?

I have run hot and cold on F5 (NASDAQ:FFIV) over the years, but that's largely because the Street plays a cat-and-mouse game with the shares based on the near-term prospects for product revenue growth. I liked the shares back in late January when skepticism was running high, and the nearly one-third move in the stock since then has been gratifying to watch.

That said, F5's problems with product growth remain and I don't share the confidence of the bullish sell-side analysts that a new product cycle is going to lead to a sustainable growth recovery, or that a move towards security is the panacea for what ails F5. I do believe this is a well-run business with a sticky, high-margin software/service component, not to mention a lot of options for M&A. Below $100, I'd seriously consider these shares again, but above $120, I'm not a big fan.

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F5 Networks - Where Do We Grow From Here?

Seeking Alpha: F5 Networks In Growth Purgatory

"My son, Here may indeed be torment, but not death" Dante Alighieri, Purgatorio Canto XXVII

As far as many tech investors are concerned, a company that cannot generate double-digit revenue growth might as well just take itself private. I could talk a lot about the double-digit growth in F5's (NASDAQ:FFIV) service business, as well as the strong margin it generates, but none of that is really going to matter unless and until F5 can perk up its product growth rate and its overall reported growth rate.

Unfortunately, that's not a simple process. The company's core application delivery controller market has most definitely slowed, software ADCs are worth less to the company than its traditional hardware ADCs, and product offerings in areas like security and diameter routing can't yet offset the impact. I can run numbers indicating that F5 is undervalued even if growth never again reaches double-digits (and, in fact, if long-term product growth is below 5%), but investors could have a frustrating wait before the Street embraces the value argument and/or the company restores its product growth performance.

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F5 Networks In Growth Purgatory

Seeking Alpha: Absent Product Revenue Growth, What Drives F5 Networks?

Wanting to like a stock is always dangerous, and that's the position I find myself in with F5 Networks (NASDAQ:FFIV). While I do believe that demand for application delivery controllers (or ADCs) is on the wane and likely to push market growth into the single digits, I also believe that the company has a significant opportunity in attaching security products and pursuing SDN/NFV and diameter signaling revenues.

The problem is identifying what's going to drive a meaningful improvement in the value proposition and/or investor sentiment. The shares look only slightly undervalued on the basis of 7% to 8% long-term growth and the company likely needs to generate double-digit product revenue growth again to get a real tailwind behind the shares. I continue to believe that F5 is a high-quality company that is not overvalued, but it's more difficult to argue that this is a must-own stock today.

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Absent Product Revenue Growth, What Drives F5 Networks?

Seeking Alpha: F5 Shares Spin Out On Weakness In Product Sales

I liked F5 (NASDAQ:FFIV) back in September, but had some concerns about the valuation and the company's history of volatility around earnings. While the shares of this technology company did rise in the months after that piece (topping out at an 8% gain), the volatility I mentioned as a big concern has returned with a vengeance after the company's fiscal first quarter report.

There have been longstanding concerns about F5's ability to offset slowing growth in the legacy ADC market with a host of product enhancements (especially security) and the weakness in this quarter and guidance has given them new life. I'm still a long-term bull on F5, though, and I think this might be one of those "buy the dip" opportunities for adventurous investors who can handle the risk that additional weakness in product revenue pushes the shares down even further as the year develops.

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F5 Shares Spin Out On Weakness In Product Sales

Seeking Alpha: F5 Networks Executing Well And Building Out The TAM

A key item on F5's (NASDAQ:FFIV) management to-do list for 2014 was to make convincing progress with software and hardware offerings that continue to expand the company's total addressable market beyond its legacy application delivery controllers (or ADCs). So far, so good, as F5 has seen strong interest in its security offerings while continuing to build out a comprehensive array of offerings for the service provider market. I'm a little more cautious now given the valuation, but five straight beat-and-raise quarters shouldn't be overlooked and the valuation is not extreme or out of line relative to the opportunities.

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F5 Networks Executing Well And Building Out The TAM

Seeking Alpha: Chronic Execution Issues Still The Story At Riverbed Technology

I've kept networking technology company Riverbed Technology (NASDAQ:RVBD) on my watch list primarily because I continue to see value in the business when, or if, management can finally iron out its ongoing execution challenges. Unfortunately, there's just no particular reason to believe the end of those challenges is in sight, so it is almost irrelevant that the Street seems a little too bearish on the growth potential of the businesses. I believe management is starting to run short on time; every fumbled quarter makes the relative certainty of Elliott Management's $21 bid look better and if a strong second half rebound doesn't materialize, shareholders may start agitating for that option.

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Chronic Execution Issues Still The Story At Riverbed Technology

Seeking Alpha: F5 Networks Basking In Some Rebound Love

In a lot of ways, application and network traffic manager F5 (FFIV) is a quintessential tech stock. This company built a great little island for itself in Application Delivery Controllers (or ADCs), but has had some meaningful ups and downs in building/linking new, equally-valuable islands. F5 has also seen wild swings in its share price as investors wax and wane on its growth prospects; when investors like F5, they really like it, and when they don't like it, they really don't like it.

The stretch from early 2012 to about mid-2013 was a rough one, as the share price plunged about 50% on fears that the ADC market was slowing (and perhaps permanently so), virtual ADCs and competition from Citrix (CTXS) were chewing up F5's business, and that new growth platforms like security and diameter signaling couldn't fill the breach. Then, investors got more bullish on F5's ADC prospects, as well as its overall vision to become a comprehensive player in network orchestration, application control, and load balancing, and the stock has regained a lot of that lost value.

What now? I think F5 is fundamentally undervalued, but this is also a stock where momentum/sentiment plays a powerful role. I don't think the shares have topped out just yet, but anybody buying today has to be pretty nimble and/or have a good sense of where the Street's mood is on the shares from month-to-month or week-to-week.

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F5 Networks Basking In Some Rebound Love

Seeking Alpha: Imperva's Valuation May Not Be So Ridiculous

I'm no fan of overheated tech momentum stories, but even with Imperva's (IMPV) shares up almost 60% over the past year, I'm not convinced Imperva is overheated. Certainly these are early days for web application firewalls and database-oriented security solutions, but Imperva has already established itself as the only company to address web apps, databases, and file activity monitoring and with appliance, software, and cloud delivery models.

Looking at what companies like Fortinet (FTNT) and Check Point (CHKP) achieved in their early years and the opportunity in securing both structured and unstructured data (as opposed to networks), I'm optimistic that a long-term revenue growth forecast around 20% is not ridiculous. That doesn't make Imperva a notably cheap stock today, but it does make it worth a spot on a watch list given the freak-outs that can drive significant pullbacks in security and enterprise software stocks.

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Imperva's Valuation May Not Be So Ridiculous

Seeking Alpha: Riverbed Underrated, Or Perpetually Underperforming?

Management at Riverbed Technology (RVBD) has definitely put forth the effort to try to rally the troops and get the sell-side to take a more positive view of the company's growth potential. Given real issues in WAN optimization demand, not to mention a history of blaming "sales execution" for weak quarters and a disappointingly slow integration of Opnet, I can understand why the Street is responding with a "show me" valuation on these shares.

I have my doubts about both the quality of management at Riverbed and the company's overall business plan. While demand for performance optimization and management is not going away, I do have my doubts about how Riverbed will fare against the likes of Cisco (CSCO), F5 (FFIV), and Citrix (CTXS) as the market evolves. If you believe that Riverbed can do what it says it will and deliver high single-digit free cash flow growth, though, these shares do look undervalued enough today to be worth a close look.

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Riverbed Underrated, Or Perpetually Underperforming?

Investopedia: The Market's Panic On Cisco Seems Overdone

Over time you eventually get used to the idea that the market seldom looks past one or two quarters (except, of course, when it's convenient to do so). So insofar as that goes, I can see how some investors may have listened to the Cisco (Nasdaq:CSCO) conference call, thought they heard a sniffle or two, and rushed to hit the panic button. Though I'm not going to say that Cisco is fully out of the woods and everything is wonderful again in IT-land, I think the long-term valuation on Cisco is getting pretty interesting now.

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http://www.investopedia.com/stock-analysis/081513/markets-panic-cisco-seems-overdone-csco-jnpr-hpq-ibm.aspx

Investopedia: Markets Playing Tetherball With F5 Networks

When I last wrote on F5 (Nasdaq:FFIV) in early June, I still liked the prospects for the company and its shares, but I warned that it was likely to be a volatile holding. In the intervening two months or so, the shares have lived up to that prediction – initialing falling another 15%, before rebounding 30% and ending up with a net 11% gain since that June 3 article.

I see little reason to believe that these shares won't remain highly volatile. Although the company should see meaningful benefits from new product launches and a spending recovery in the coming quarters, there is still the spectre of greater competition and a slowing core market looming over the shares. While I continue to believe that F5 is the premier application delivery controller (ADC) company, and that the ADC market is slowing (not declining), the market's uncertainty regarding the company's future is likely to play out in outsized reactions in the stock price.

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http://www.investopedia.com/stock-analysis/072913/markets-playing-tetherball-f5-networks-ffiv-ctxs-csco-rdwr.aspx

Investopedia: Riverbed Technology Waiting On Synergies And Performance Management Market

Companies deal with fading growth prospects in different ways. Some companies, like F5 (Nasdaq:FFIV) try to use relatively small-scale M&A and their own internal R&D to develop new products and enter into new markets. Others, like Cisco (Nasdaq:CSCO) and Riverbed (Nasdaq:RVBD) take bigger swings on the M&A front, putting more of their shareholders' capital at risk in the hopes of bigger long-term rewards. While the growth prospects for WAN optimization are no longer as bright as they once were, Riverbed hopes to benefit from a more comprehensive suite of technologies and solutions for the network performance market, and the stock may just be cheap enough to be worth consideration.

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Investopedia: F5 Networks On Its Heels, But Hasn't Fallen Down Yet

There are only a handful of tech companies that aren't seeing significant pressure on their revenue growth these days, so in that respect F5 (Nasdaq:FFIV) is in good company. What's more troubling about F5, though, is the prospect that the company's core market (and its position within that market) has begun to fade significantly. Although F5 is cash-rich and has opportunities to reignite growth with new products for new markets, investors need to appreciate the risk that growth stagnates during this reconstruction period and that valuation alone won't be enough to support the stock.

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Investopedia: After The Hurricane, Is It Safe To Visit Aruba Networks?

There's a pretty good rule of thumb that applies to swimming and diving – if you can't see the bottom, don't dive in -- and think twice about swimming there. Likewise, jumping into a stock right after a significant revision to earnings expectation can be an invitation for successive disappointments, as companies don't often miss just one time.

With Aruba Networks (Nasdaq:ARUN), that leads to some tough choices for investors. While I definitely believe that the wireless networking (WLAN) is going to grow significantly, and that Aruba is well-positioned to take more share in the small/medium-sized business (SMB) space, I also acknowledge that WLAN spending is largely discretionary and this company could see further order/revenue disappointments if IT demand doesn't rebound during the summer.

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http://www.investopedia.com/stock-analysis/050913/after-hurricane-it-safe-visit-aruba-networks-arun-csco-rkus-msi-ffiv-rvbd-orcl-ibm-jnpr-hpq.aspx

Investopedia: Fortinet Stumbles, Making Tech Investors Very Insecure

Although you wouldn't necessarily always know it by the growth rates at leading enterprise security vendors like Check Point (Nasdaq:CHKP) and Cisco (Nasdaq:CSCO), security has been one of the better markets in enterprise IT. So the real question in the wake of Fortinet's (Nasdaq:FTNT) warning on first quarter results is whether this is company-specific, market-specific, or a more widespread problem within the security sector.

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http://www.investopedia.com/stock-analysis/041113/fortinet-stumbles-making-tech-investors-very-insecure-ftnt-chkp-csco-panw.aspx

Investopedia: F5 Networks Takes Another Whirl In The Tech Spin Cycle

Between earnings from the likes of Oracle (Nasdaq:ORCL) and TIBCO (Nasdaq:TIBX) and yesterday's negative guidance from F5 (Nasdaq:FFIV), I think it's safe to say that the tech spending market has cooled noticeably. Given the hype and hope that had been built into so many tech company valuations, that should probably have investors feeling at least a little uncomfortable now. While I am still a believer in F5, it's going to be tough to own tech stocks until there is a real sign of renewed momentum in the sector – likely a second-half event.

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http://www.investopedia.com/stock-analysis/040513/f5-networks-takes-another-whirl-tech-spin-cycle-ffiv-rdwr-csco-orcl.aspx

Investopedia: Oracle Dials It Up In Telecom

Oracle (Nasdaq:ORCL) doesn't do things halfway, and when the company announced its acquisition of Acme Packet (Nasdaq:APKT) it looked like only the beginning of the company's strategy to exploit the large telecom vertical. Now we know that the company really is serious, as it has followed the Acme Packet deal with an announcement that it intends to acquire networking vendor Tekelec from its private equity owners.

A Complimentary Deal With Interesting IP Ramifications
Right off the bat, acquiring Tekelec makes quite a bit of sense. Tekelec is a telecom equipment vendor that specializes in products that handle mobile traffic. In particular, the company focuses on areas like network signaling, policy control, and subscriber data management. Combined with Acme Packet's network control products/technology, Oracle will offer a cohesive hardware/software line-up in network control for large carrier customers like Verizon (NYSE:VZ) and AT&T (NYSE:T).

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http://www.investopedia.com/stock-analysis/032713/oracle-dials-it-telecom-orcl-ffiv-apkt-eric-vz.aspx

Seeking Alpha: The Street Doesn't Seem To Believe Radware Will Become A Player

Wall Street doesn't typically have all that much patience with tech growth stories, so while Radware's (RDWR) historical growth is hardly embarrassing, it doesn't seem like analysts or investors expect big things from this company in the future. Maybe that's fair given the slowing ADC market and the rampant competition in security, but Radware's technology and rich cash balance could generate more growth than currently expected.

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The Street Doesn't Seem To Believe Radware Will Become A Player