F5 shares drop more than 9% due to disappointing earnings outlook

F5 Inc. shares tumbled more than 9% in late trading today after the application security business reported mixed results in its fiscal second quarter and fell short of expectations for its third quarter guidance.

For the quarter ended March 31, F5 reported adjusted earnings per share of $2.91, up from $2.53 in the same quarter the prior year, on revenue of $681 million, a 3% decrease year on year. Earnings per share exceeded analysts’ expectations of $2.87, but revenue fell slightly short of $684.3 million.

F5 recorded an adjusted gross profit of $559 million in the quarter, down from $565 million in the second quarter of the previous fiscal year, while its gross margin increased to 82.1% from 80.4%. F5’s operating profit increased to $210 million from $191 million last year.

“We delivered a solid second quarter, with revenue near the midpoint of our guidance range and earnings per share at the high end of our guidance in an environment where customers remain cautious and are forecasting largely flat IT budgets for calendar 2024,” Chief Executive Fran├žois Locoh-Donou said in the company’s earnings announcement. “During the quarter, our software subscription renewals continued to perform well, driving 20% total software revenue growth compared to a year ago, including 28% subscription revenue growth.”

For the fiscal third quarter, F5 anticipates adjusted earnings per share of $2.89 to $3.01 on revenue of $675 million to $695 million. Both missed the midpoint, with analysts anticipating $3.09 per share on revenue of $694.8 million.

F5 Networks is a market leader in network security and traffic management, focusing on major companies and medium-sized organizations. In addition to selling networking equipment, F5 offers software and services as part of a continuous effort to expand beyond its core hardware sales-based business model.

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