Online Video Beneficiaries: F5

The Online Video momentum is driving growth and activities in the networking equipment and infrastructure industry. 3Com just reaped the benefits in form of a Private Equity transaction. Akamai is another strong beneficiary.

This post will look at the topic from the application delivery networking angle. There is an increasing use of web-based business applications and use of PDAs, smartphones, and notebook computers to access multimedia applications over the Internet. A major beneficiary of this trend is F5.

F5 Networks (NASDAQ:FFIV) is the global leader in Application Delivery Networking with annual revenues of $394 million in 2006. Its products enhance the delivery, optimization and security of application traffic on IP-based networks. It leads the Application Delivery Controller (ADC) market with a 38.3% market share and the advanced platform ADC subsegment with a 61.2% share as per a Gartner report published in June 2007- a commendable job considering the fact that it is up against companies like Cisco, Juniper, Citrix, Foundry, and Nortel.

The majority of its revenues come from its core products: BIG-IP Local Traffic Manager; BIG-IP Global Traffic Manager, BIG-IP ISP Traffic Manager; TrafficShield Application Firewall or Application Security Manager, and FirePass SSL VPN servers. F5 also offers WANJet and WebAccelerator products for traffic optimization.

Its BIG-IP products share a common full-proxy Traffic Management Operating System (TMOS) with a built-in functionality to secure, optimize, and ensure the availability of application traffic.

F5 is on road to a complete, integrated application delivery product suite. As part of this strategy, it has introduced TMOS-based versions of its legacy products, GTM and Link Controller as well as for its acquired products, Application Security Manager and WebAccelerator from Swan Labs, which was acquired in October 2005. It also plans to offer TMOS-based versions of third-party products.

In September 2007, F5 acquired Acopia Networks for $210 million, snatching up the last independent file virtualization vendor left standing. Cisco had earlier in 2007 acquired its competitor NeoPath Networks.

For Q3 2007, F5 reported revenue of $132.4 million, a 32% year-over year increase. Net income was $21.8 million ($0.51 per diluted share), compared to $20.0 million ($0.47 per diluted share) in Q2 2007 and $17.0 million ($0.41 per diluted share) in Q3 2006. It also announced a two-for-one forward stock split of its common stock. For the fourth quarter, F5 expects earnings between 53 cents and 55 cents (27 cents to 28 cents post-stock split) and revenue of between $142 million and $144 million. Its market cap is $3.22 billion and its stock is currently trading around $38-$40.

F5 has carved for itself a nice niche, and is executing well within that. It is definitely an Online Video Beneficiary, and should do well for itself and for investors.

This segment is a part in the series : Online Video Beneficiaries