UPDATED 18:54 EST / NOVEMBER 09 2020

INFRA

Pressured by investors, F5 Networks announces $1B stock buyback

Network security and traffic management company F5 Networks Inc. saw its stock jump almost 7% in pre-market trading today after announcing plans to buy back $1 billion worth of its stock over the next two years.

The company said the plan involves the “accelerated repurchase” of $500 million worth of its stock in fiscal 2021, with the rest of the stock to be bought back by the end of fiscal 2022. The announcement came as F5 said it’s targeting adjusted earnings per share growth in the double digits and revenue growth of 6% to 7% over the next two years. It’s also hoping to accelerate its software revenue to a compound annual growth rate of 35% to 40% in the same time frame.

The plan was announced just 24 hours after it was revealed the well-known activist investor Elliott Management Corp. had taken a sizable though not more than 5% stake in F5. The Wall Street Journal, which first reported that news, said Elliott has also held discussions with F5’s management about ways to boost its stock price, which has barely grown in recent months as tech stocks generally have soared. Companies often use buybacks to bolster or stabilize stock value, so it’s possible that today’s announcement is a direct result of those talks.

Elliot’s modus operandi involves taking a big stake in what it believes are underperforming companies and then advocating for changes that it believes will ultimately lift their share price. Elliott typically pushes for stock buybacks, management shifts or an outright sale. Most famously, Elliott was one of the principle agitators behind Dell Technologies Inc.’s $67 billion acquisition of EMC Corp. in 2016.

F5’s stock is up about 3.5% since the start of the year, but that compares poorly with many other technology companies that have grown rapidly on the back of the coronavirus pandemic. The tech-heavy Nasdaq Composite Index has risen 33% this year, for example. Meanwhile F5’s profit margins have also declined. F5’s stock remains well down from a high of about $200 in late 2018.

The Journal reported that Elliott’s managers believe F5 is not living up to its potential, and that they question its recent acquisitions of Shape Security Inc. and Nginx Software Inc. Elliott reportedly believes F5 paid over the odds for those companies without having a clear integration strategy.

“Private equity investors often look for under valued enterprises and try to turn them around,” said Constellation Research Inc. analyst Holger Mueller. “Evidently, Elliott sees F5 as a target as it probably could and should grow better in this era of ‘Infinite Computing,’ as it enables the infinite communications the modern digital society needs, and in a pandemic that’s even more important than ever.”

F5 Networks is due to report its fiscal 2021 first-quarter results on Nov. 18.

Photo: F5 Networks

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