F5 Networks, Inc.: Will 5G Take This Tech Stock to New Heights?

This Tech Stock Looks Interesting

One of the neat things about the 5G rollout is that it benefits a lot of companies, including companies that many investors aren’t looking at.

Check out F5 Networks, Inc. (NASDAQ:FFIV), for instance.

Headquartered in Seattle, WA, F5 Networks is a multi-cloud application security and delivery company.

Its solutions enable its customers—which include some of the world’s largest enterprises, financial institutions, service providers, and governments—to develop, deploy, operate, secure, and govern applications from on-premises to the public cloud.

F5 Networks, Inc. started in 1996—way before 5G became a buzzword. In its early years, F5 Networks helped companies scale web sites with load-balancing technology.

Over the years, the company purposely transformed its business to meet changing customer expectations. In particular, F5 Networks now focuses on helping companies scale, secure, and optimize applications across all environments. And the 5G rollout could take its business to the next level.

In April, when asked how 5G will benefit F5 Networks’ business, the company’s president and chief executive officer, François Locoh-Donou, said the following:

Now, if you go into 2022, a lot of these carriers will start to put in production, their 5G core, and those are virtualized. And so that opportunity will turn into a software opportunity for F5. And we have already won significant design wins for these 5G cores and we’re in the process of doing first office applications and pilots and things like that before going into production in the next 6 months to 12 months. So it’s a hardware expansion opportunity today. And over the next 12 months, it will move to be a software opportunity in 5G cores for F5.

(Source: “F5 Networks, Inc. (FFIV) CEO François Locoh-Donou on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, April 27, 2021.)

In other words, even though F5 Networks is not known for being a 5G stock—perhaps because the company serves enterprise customers rather than consumers—it is indeed well positioned to capitalize in the 5G era.

Better yet, while we’re still in the early stage of 5G adoption, F5 Networks’ business has already been growing at a commendable pace.

In the second quarter of F5 Networks’ fiscal 2021, which ended March 31, the company earned $645.0 million of revenue, representing an 11% increase year-over-year. (Source: “F5 Delivers Second Consecutive Quarter of Double-Digit Revenue Growth with 19% GAAP and 18% Non-GAAP Product Revenue Growth,” F5 Networks, Inc., April 27, 2021.)

There were improvements across the board, as the company enjoyed 20% software revenue growth, 17% systems revenue growth, and four-percent global services revenue growth in the quarter.

Notably, the strong systems revenue growth was in part due to the emergence of 5G-driven service provider demand.

For the quarter, F5 Networks achieved an adjusted operating margin of 30.3%, marking a 120-basis-point expansion year-over-year. (Source: “Q2FY21 Results,” F5 Networks, Inc., April 27, 2021.)

For the bottom line, the company generated adjusted net income of $155.0 million ($2.50 per diluted share) in the second fiscal quarter, compared to $136.0 million ($2.33 per diluted share) it earned in the year-ago period.

However you look at it, this under-the-radar 5G stock has been churning out very decent numbers.

F5 Networks, Inc. (NASDAQ:FFIV) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Looking at the above chart, we see that shares of F5 Networks, Inc. made a swift recovery after tumbling during the market crash in March 2020. F5 Networks stock had another strong rally from October 2020 to January 2021.

Since then, though, FFIV stock seems to have encountered resistance around the $210.00 mark. It has tested that level quite a few times but hasn’t been able to completely break above it.

F5 Networks stock has fallen back after the company’s latest earnings report, which, as discussed earlier, wasn’t a bad one at all. Perhaps it’s the “selling the news” mentality.

For long-term investors, this pullback could be an opportunity to get on board a solid 5G stock.