15. F5, Inc. (NASDAQ:FFIV)
Number of Mutual Funds: 17
Number of Hedge Fund Investors in Q2 2024: 25
F5, Inc. (NASDAQ:FFIV) is a software as a service (SaaS) company. It provides cloud based security products that allow users to virtually and securely work with their software. It is one of the more interesting SaaS stocks that you’re likely to come across since F5, Inc. (NASDAQ:FFIV) has successfully transformed itself from providing information technology hardware products to cloud computing software. This has proven to be quite important, as the growth in cloud computing has led a host of businesses to shift away from expensive hardware deployments to cheap, lean, and specialized virtualization software products. Additionally, IT spending has slowed down in today’s high interest rate era, and investors were impressed with F5, Inc. (NASDAQ:FFIV)’s ability to pivot into software in July when they sent the shares soaring by 13%. This was after the firm’s fiscal third quarter results that saw its revenue and EPS of $695 million and $2.44 beat analyst estimates of $686 million and $1.98. The high margin software business has served F5, Inc. (NASDAQ:FFIV) well, as while its revenue dropped from the year ago figure of $395 million, in Q3, net income grew from $89 million to $144 million. Looking forward, guidance beat for the full year could create tailwinds while troubles with software subscription renewals could create headwinds.
During the Q3 2024 earnings call, F5, Inc. (NASDAQ:FFIV)’s management commented on what its witnessing in its hardware product demand:
“Look, I think we have seen hardware stabilize over the last several quarters as customers have digested inventory. And over the last several quarters, we have seen a number of customers still sweating their assets in the current macro-environment, but we’re starting to see that change. And so for this year, we are about at the levels we think we’re going to be this year. But going into next year, our view is that there — the demand signals on hardware are pretty good. And so our expectations is that hardware, next year, will certainly not decline, possibly could be up relative to this year. And it’s driven by a few use cases, Tim. Number one is we have a strong pipeline of tech refresh activity and this is largely from customers that have digested their inventory or customers that were sweating assets and no longer can do that at this point.
And we’re starting to see that the close rates on this pipeline are going to be pretty strong. Specifically in the service provider space where they have sweated assets very aggressively, we’re now starting to see large programs come up again for CapEx in hardware in service provider. And also, we’re starting to see AI as a catalyst on the horizon for hardware. So, specifically for the few large enterprises or service providers that are building large AI factories. And one of the big issues in building these large GPU clusters, obviously, is the cost of training these models. And our technology specifically are high capacity, high performance, traffic management technology, BIG-IP is perfectly suited to improve the efficiencies of these large AI factories and thereby reduce the cost of them.”
