F5 Networks Inc.

Nasdaq: FFIV
Analysts
Amey Dargude | Mihir Londhe
Rahul Gohil | Shruti Shah
Vanditha Mysore Ravindranath

Presented on 31st March 2016

Agenda

• Introduction
• Business Overview
• Industry Overview
• Macroeconomic Factors
• Financial Analysis
• Financial Projections
• Valuation
• Technical Analysis
• Recommendation
Selection Criteria

Piotroski
Score
=6

Diversification ROE > 20%

F5
Networks
Inc.

Market Cap Current ratio

< 8 Bn > 1.5
 Introduction

• F5 Networks is the leading developer and provider of software-

defined application services designed to ensure that applications
delivered over Internet Protocol (IP) networks
• F5 Networks was incorporated on February 26, 1996
• F5 has headquarters in Seattle, Washington
• F5 has subsidiaries or branch offices in over 30 countries
 Introduction

Total ADC Virtual ADC

F5 49 F5
51
Others Others

End Users Applications

F5 investors relations
 Business

F5 investors relations
 Business

Solutions Products

 Enterprise  BIG-IP Products:

• Application Delivery • Local Traffic Manager
• BIG-IP DNS and Link
• Security Controller
• Cloud • Advanced Firewall Manager
 Technological Alliances • Policy Enforcement Manager
• Application Security Manager
 Service Providers
• Application Acceleration
• Security Manager
• Data Traffic • Access Policy Manager
Management • MobileSafe
• IP Intelligence Services
• Diameter and DNS • Enterprise Manager
Signaling Service Provide Module
• Network function • Signaling Delivery Controller
Virtualizations • Policy Enforcement Manager
• Carrier-Grade NAT
 Silverline

F5 investors relations, 10k 2015

 Business

F5 Customer highlights • 5 of the top 5 healthcare: pharmacy and

other services1
• 8 of the Fortune 10 companies1
• 15 of the 15 executive branch departments
• 44 of the Fortune 50 companies1 of the US federal government2
• 18 of the top 20 US commercial banks1 • 10 of the top 10 fixed AND mobile global
• 5 of the 5 top US airlines1 service providers3
• 9 of the top 10 US insurance companies - • 4 of the top 5 US Internet search providers
4

property and casualty1 • 16 of 20 cloud infrastructure and Web

hosting companies5

Sources: 1 Fortune 2011; 2 USA.gov Web site listing 3 Q311 Ovum Market share, by revenue, global; 4 Comscore May 2011; 5 Gartner Magic Quadrant Public Cloud Infrastructure as a
Service (On Demand, December 2011)
 Business segmentation

F5 investors relations
 Business Performance

F5 investors relations
 Business alliance

F5 investors relations
 Management Guidance

F5 investors relations
SWOT Analysis

• No Debt
• Strong R&D • The highest-priced
• Strong market provider in the
presence ADC market
• Silverline cloud- • F5 platform is not
based services well-aligned with
• Capability to midmarket
organizations
consolidate function
alities into a single
platform
S W
O T
• Cloud, Mobility and • Intense competition
security both in price and
• Large addressable quality
market • Fast changing
• Asian markets technology and
hardware
equipment being
obsolete
 Industry

Global analysts report

 Industry

Porter’s Five Forces

Threat of Substitutes
• High technology turnover 5
4
3
2 Buyer's Bargaining
Industry Rivalry
1 Power
0 • End to End
• Big Players
solutions provided
• Less
interchangeability

Supplier's Threat to new

Bargaining Power entrants

• High employee turnover

 Macroeconomic Overview

Ibis world
 Macroeconomic Overview

Cisco report: http://www.cisco.com/c/en/us/solutions/service-provider/vni-network-traffic-forecast/infographic.html

http://www.cisco.com/c/dam/assets/sol/sp/gci/global-cloud-index-infographic.html
 Macroeconomic Overview

Cisco report (ibid) |Centaur partners, http://www.centaurpartners.com/pdfs/CP_SaaS_Market_Overview.pdf

 Financial Analysis

Liquidity Ratios Profitability Ratios

400,000
90.00% 2000
2.x

350,000
1800
70.00%
1.5x
300,000
1600

1.x 50.00%
250,000
1400

.5x 30.00%
200,000 1200

- 150,000 10.00% 1000

2011 2012 2013 2014 2015 2012 2013 2014 2015

Cash Current Ratio Quick Ratio Cash Ratio Revenue (USD m) Gross Profit Margin
Net Margin ROA
ROE (Book Value)
 Financial Analysis

Activity Ratio

55.x

45.x

35.x

25.x

15.x

5.x
2012 2013 2014 2015

A/R Turnover A/P Turnover Inventory Turnover

 Financial Analysis

Du Pont Analysis 2011 2012 2013 2014 2015

Tax Burden 66.92% 63.67% 63.30% 62.57% 65.03%
Interest Burden
Operating Profit Margin 30.44% 30.95% 29.08% 28.50% 28.80%
Asset Turnover .79x .72x .78x .85x
Leverage 1.43x 1.44x 1.52x 1.67x
ROE 22.29% 19.02% 21.24% 26.77%

GreenBlatt Ratios

60.0%

40.0%

20.0%

0.0%
2011 2012 2013 2014 2015

EBIT/Tangible Asset EBIT/EV

 Financial Projections

Revenues SG&A
4,000,000 (1,200,000)

3,500,000
(1,000,000)
3,000,000

2,500,000 (800,000)

2,000,000
(600,000)
1,500,000

1,000,000 (400,000)

500,000 (200,000)
- 1 2 3 4 5 6 7 8 9 10
1 2 3 4 5 6 7 8 9 -

COGS R&D
(700,000) (700,000)

(600,000) (600,000)

(500,000) (500,000)

(400,000) (400,000)

(300,000) (300,000)

(200,000) (200,000)

(100,000) (100,000)
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
- -
Financial Projections
Discount Rate

Annual Realized Returns

Year Actual
Apr 2015 to Mar 2016 -15.26%
Apr 2014 to Mar 2015 16.02%
Apr 2013 to Mar 2014 37.60%
Arithmetic Annual Return 12.79%
Geometric Annual Return 10.60%
DCF Valuation

$94.45 2.50% 2.75% 3.00% 3.25% 3.50%

10.70% 96.03 98.39 100.90 103.58 106.45
10.95% 93.04 95.24 97.57 100.06 102.72
11.20% 90.22 92.27 94.45 96.77 99.24
11.45% 87.56 89.48 91.52 93.68 95.97
11.70% 85.04 86.85 88.75 90.77 92.91
 FFIV Competitors

Brocade Communications Systems, Inc. Ciena Corporation

Juniper Networks, Inc. Citrix Systems, Inc.

 Relative Valuation

(in millions)

Companies Ticker M.Cap P/E P/BV EV/EBIT EV/Sales

Brocade Communications Systems, Inc. BRCD $4,226.60 12.90 1.70 7.60 1.60
Ciena Corporation CIEN $2,580.40 124.70 4.10 22.10 1.20
Juniper Networks, Inc. JNPR $9,760.20 16.00 2.10 10.80 2.00
Citrix Systems, Inc. CTXS $11,978.10 39.10 6.10 21.50 3.80
Mean 22.67 3.50 15.50 2.15
F5 Networks, Inc. FFIV $6,398.80 20.70 5.70 10.20 2.90

Relative Valuation
Peer Enterprise
Ratios Implied Share Price Weights
Average Value
P/E 22.7x $114.92 0.25
P/BV 3.5x $65.70 0.25
EV/Sales 2.2x $4,186.05 $75.40 0.25
EV/EBIT 15.5x $8,548.25 $147.26 0.25
Target Share Price $100.82

Greenblatt Analysis
EBIT/Tangible
Companies Ticker EBIT/EV
Assets
Brocade Communications Systems, Inc. BRCD 13.13% 56.72%
Ciena Corporation CIEN 4.52% 83.62%
Juniper Networks, Inc. JNPR 9.30% 58.49%
Citrix Systems, Inc. CTXS 4.66% -
Mean 7.90% 66.28%
F5 Networks, Inc. FFIV 9.84% 79.49%
Technical Analysis
Recommendation

DCF Comparable
$ 94.45 $100.82

Current Price
$105.47

Watch list
Thank You

Q&A