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Why F5 Networks Stock Jumped 8.5% on Tuesday

By Anders Bylund – Updated Oct 27, 2020 at 4:32PM

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The application delivery expert smashed Wall Street's estimates in the fourth quarter.

What happened

Shares of F5 Networks (FFIV 0.43%) rose as much as 11.3% on Tuesday, lifted by an impressive fourth-quarter earnings report. At the end of the day, the application delivery specialist's stock closed 8.5% higher.

So what

Earnings fell 6% year over year to $2.43 per share. Revenue rose 4% to $615 million. Your average Wall Street analyst would have settled for earnings near $2.37 per share on sales in the vicinity of $606 million. Management also set up bullish guidance targets for the first quarter of the fiscal year 2021, citing a healthy customer interest in boosting their own business value with popular F5 solutions like the BIG-IP app delivery services and the Nginx platform.

A businessman points to a bar chart showing growth over time.

Image source: Getty Images.

Now what

Looking down the road, CFO Frank Pelzer said that software sales should increase by at least 35% in 2021, offset by a single-digit decline in hardware systems sales. The company is pivoting to a more lucrative business model based on subscription-style software and service contracts.

Despite the promising growth in F5's software sales, the stock is more of a value play than a high-flying tech darling these days. Share prices have fallen 10% in 2020, including Tuesday's jump, and can be bought at a very reasonable 12 times free cash flow and 13 times forward earnings estimates.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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