Please ensure Javascript is enabled for purposes of website accessibility

Why F5 Networks Stock Crashed 10% After Earnings

By Rich Smith - Updated Apr 28, 2021 at 3:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pro forma profits were great, but F5's GAAP number was less impressive.

What happened

Investors in cloud computing app provider F5 Networks (FFIV 0.04%) suffered a big blow Wednesday, as the stock crashed 10% through 2:45 p.m EDT. The move comes despite the company beating analyst targets for sales and earnings in the fiscal second quarter of 2021.

Heading into earnings, analysts had forecast F5 would earn $2.39 per share on sales of $636 million. Tuesday night, F5 reported earnings of $2.50 per share on sales of $645 million. But the stock is down despite the beat. Why?

White arrow declining sharply atop a stock tickertape display bathed in red

Image source: Getty Images.

So what

I see a couple of reasons why investors might have been unimpressed with F5's beat.

First and foremost, while F5 grew its sales a respectable 11% year over year in Q2, with product revenue growing 18% and services revenue up 4%, the company's earnings performance according to generally accepted accounting principles (GAAP) was underwhelming. Although pro forma earnings did exceed expectations, at $0.70 per share, the company's GAAP earnings declined 30% from the $1 per share earned a year ago.  

Now what

Guidance is the second reason investors may be displeased with last night's news. Although it's true F5 beat earnings in Q2, investors are often more concerned with predictions of future performance than with a company's actual historical achievements. And in that regard, investors may have been upset to learn that after beating in Q2, F5's predictions for the third quarter show the company earning only $2.36 to $2.54 per share ($2.45 at the midpoint) this quarter, rather than the $2.50 per share (pro forma) that Wall Street wants to see F5 to earn in Q3.

Additionally, F5 said its sales for Q3 will range from $620 million to $650 million in Q3. While at the midpoint, that prediction would basically match Wall Street estimates, it leaves open the possibility that F5 will miss on sales this quarter, as well as on earnings.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

F5 Networks, Inc. Stock Quote
F5 Networks, Inc.
FFIV
$155.39 (0.04%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
323%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.