F5 ( NASDAQ: FFIV ) shares popped on Wednesday even as investment firm Bank of America noted the results were "solid," but pointed out that software growth was slowing.
Analyst Tai Liani, who has a neutral rating and a $170 price target on F5 ( FFIV ), noted that the company's management expressed caution over the broader economic environment and inflation, both of which could pressure their budgets and result in customers re-prioritizing their investments. While the company has not seen any spending changes yet, that could soon be an issue.
"[Fourth-quarter] is normally a strong quarter for software, but management highlighted greater risks in achieving the top-end of its [fiscal 2022] software growth range and we calculate that at the low and mid-points of the annual guidance range, [fourth-quarter] software could decelerate to 20% and 28% [year-over-year], respectively," Liani wrote in a note to clients.
As such, it could be hard for F5 ( FFIV ) to meet Wall Street estimates of 32% growth and grow software revenue to be roughly $700M per year.
F5 ( FFIV ) shares rose more than 6% to $164 in premarket trading.
Despite the concerns about future software growth, third-quarter growth was good, as software grew 38% year-over-year to $674.5M and operating expenses were lower-than-expected.
Liani also noted that F5 ( FFIV ) continues to see "strong demand" across its recurring segments, with subscriptions now accounting for 82% of software revenue, up from 78% a year ago. Gross margins of 83.2% were above estimates, aided by average selling price of systems and so was the 28.8% operating margin.
The company instituted a roughly 15% price increase as of July and though a number of orders were pulled ahead to avoid the increase, orders are still "solid" on a normalized basis.
In addition to the quarterly results, F5 ( FFIV ) authorized a $1B share repurchase program, meant to be to the $272M remaining in the existing program .
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F5 pops even as BofA points out decelerating software growth amid Q3 beat, strong outlook