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F5 Network (FFIV +6%) is taking off like an F1 race car today after beating on Q3 (Jun) earnings and revs. Although a tech company, F5 just started posting double-digit revenue growth for the first time in five years last quarter, as its legacy hardware business had weighed on revenue growth. Investors are cheering that F5 continued this growth trend in Q3.

F5 was established in the 1990s as a supplier of on-premise, or hardware, application delivery controllers (ADC) intended mainly to handle load balancing between servers and accelerate applications. However, as cloud-based workloads exploded in the past few years, the need for on-premise ADCs plummeted, and F5 began shifting toward offering virtual ADCs.

• For Q3, F5 reported adjusted EPS of $2.76, topping consensus by $0.30, its largest beat in five years. Revenue also grew 11.7% yr/yr to $651.52 mln, which also topped consensus. Services revenue grew at a typical slow rate of 3.5% yr/yr. However, product revenue exploded, growing 22.3% yr/yr. Also, software revenue continues to show standout growth, up 34% yr/yr in Q3 after growing 20% in Q2 (Mar). Software revenue now makes up 42% of product revenue.
• The other 58% of product revenue comes from F5's systems revenue, which grew 13% yr/yr. Although it only grew mildly, we see systems revenue as a major growth factor moving forward, as it contains F5's 5G traffic demand software solutions. As mobile network providers continue to migrate from 4G to 5G, their networks will need to handle increasing traffic loads, acting as a catalyst for F5 moving forward.
• F5 also implements security features to defeat threats that slow applications or even steal sensitive data alongside its ADC offerings as a unified solution. Its acquisitions of Nginx and Shape from 2019 help provide application security and bot protection. In our view, F5's security offerings create stickiness within its software portfolio. For example, multiple new customers in Q3 chose F5 for its Nginx and Shape security features that work alongside its ADC offering.
• Looking ahead, F5 issued in-line Q4 (Sep) EPS and revenue guidance of $2.68-2.80 and $660-680 mln, respectively. Although only in-line, F5 is guiding to another quarter of double-digit yr/yr revenue growth on the high end of its guidance.

Overall, investors are cheering that F5 reported its second straight quarter of double-digit revenue growth after years of slow single-digit growth. Investors also like F5's outperformance of its Q3 EPS and revenue guidance. Given that F5 beat the high end of its Q3 revenue guidance of $650 mln, investors may be anticipating another quarter of outperformance, given the price action today.

On a final note, amid the increasing trend of cyberattacks, network security has never been more critical, and F5 offers both crucial web traffic load balancing and cybersecurity in one. Finally, given the robust software revenue growth over the past two quarters, it appears F5 is turning a corner after years of trying to stick it out with its hardware offerings.