F5 Stock Is Tumbling. Its Customers Are More Cautious Now. -- Barrons.com

Angela Palumbo

F5 stock was falling Tuesday on the software company's disappointing assessment of its customers, and a mixed earnings report.

After the stock market closed on Monday, F5 said that it expects fiscal 2024 revenue growth to be flat to down 2% from fiscal 2023. That's essentially the same outlook after the first-quarter outlook for fiscal year 2024 revenue growth of "flat to low-single-digit decline" from a year ago.

The assessment of its clients has changed, however. "Overall, customers remain cautious as a result of lingering macroeconomic concerns and what currently looks like generally flat IT budgets for calendar 2024," CEO François Locoh-Donou said on the latest earnings call.

He had been more optimistic a quarter ago when he said, "I think for the most part, for the calendar year, our customers don't have the kind of budget fully in place yet...But what we are seeing that is encouraging is when you look at our pipeline over the next four quarters."

F5's fiscal-second-quarter adjusted earnings per share of $2.91 on revenue of $681 million compared with consensus estimates for earnings per share of $2.87 on revenue of $685.5 million, according to analysts surveyed by FactSet. In the same period last year, the company reported adjusted earnings of $2.53 a share on revenue of $703 million.

Shares of F5 were tumbling 11% to $162.38 and were on pace for their largest percentage decrease since April 27, 2022, when the shares dove after the company cut revenue guidance, according to Dow Jones Market Data. The stock, which was the worst performer in the S&P 500 Tuesday, has dropped 9.3% this year.

Most analysts are lukewarm on F5 stock. Of the 16 surveyed by FactSet, one has a Buy rating, 12 are at Hold, and three have Sell ratings.

"Second-quarter results largely underscored our thesis that F5 is somewhat stuck looking for a sustainable growth catalyst," William Blair analyst Sebastian Naji wrote in a research note Tuesday.

"While macro pressure on IT budgets is not helping (pushing customers to limit new subscriptions and sweat assets longer), we believe F5 is also losing wallet share (particularly with artificial-intelligence-related budget reallocations)," Naji added. He rates F5 stock as Market Perform with no price target.

Guggenheim analyst Raymond McDonough also kept his Neutral rating without a price target on the stock. He's waiting to "gain more conviction in the rate and pace of software revenue growth."

Meanwhile, Needham analyst Alex Henderson is the lone bull on F5 stock with a $220 price target. He wrote in a research note that "while macro pressures have weighed on demand and revenue growth near-term, F5 is still expanding [gross margins] and Operating Margins, and we believe [earnings per share are] likely to return to double-digit growth." He added that if F5 continues to struggle to grow, "we think Private Equity could make a run at the company."

Write to Angela Palumbo at angela.palumbo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 30, 2024 10:45 ET (14:45 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.