Packet inspection/traffic management

Analysts Unfazed by F5's Plunge

A 22-percent drop for F5 Networks Inc. (Nasdaq: FFIV)'s share price following the company's fiscal first-quarter report is not a sign of the apocalypse, most analysts are saying this morning. (See F5 Reports Q1.)

The company, whose systems improve application delivery over networks, has been a hero stock for tech, but it's lost more than $30 per share today, dropping to $108.64 as this article was written. To be fair, F5's stock has been on an insane hot streak, growing sevenfold in 24 months, and it was probably due for a beatdown.

F5's earnings -- net income of $55.7 million (68 cents per share) on revenues of $268.9 million -- were fine, although they didn't beat estimates like the last six quarters' results did. The real damage came in F5's forecast for the second quarter, which ends in March: revenues of $275 million to $280 million, compared with an analyst consensus of $280.7 million, according to Thomson.

Here's a handful of analyst reactions -- three shrugging it off, one expressing caution.

  • Catharine Trebnick, Avian Securities LLC : "We realize that the company must demonstrate sustained growth in order to continue to show they can beat estimates going forward, but having said that we believe the company is on the right track."
  • Brian Marshall, Gleacher & Co.: "The company remains the dominant force in a secular growth market (application delivery controllers or ADCs) ... In our view, this is indicative of the Street once again overreacting to a 'bump in the road.'"
  • Mark Sue, RBC Capital Markets : "Competitively, we're not seeing any unusual activity, and it's lower, but the sequential growth overall for F5 still remains healthy."
  • Ittai Kidron, Oppenheimer & Co. Inc. : "We're concerned these could be first signs of demand saturation or digestion ... Until clearer patterns point to a 'hiccup,' we'd rather sit on the sidelines."
Why this matters
F5 has been one of the hottest stocks in networking, along with Riverbed Technology Inc. (Nasdaq: RVBD) and, from a different part of the industry, Acme Packet Inc. (Nasdaq: APKT). The ride has to end some time. Investors have to decide whether F5 is just being conservative or whether its growth is ready to start leveling off.

There are parallels here to Cisco Systems Inc. (Nasdaq: CSCO), which spooked investors with a weak forecast recently.

For more
Here are some peeks at F5's business and how it has crossed paths with Cisco.

— Craig Matsumoto, West Coast Editor, Light Reading

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