F5 posts $917 million in revenue, sees slower systems growth in second half
Key Facts
F5 reported revenue of $917 million in the fourth quarter of fiscal 2026 and expected a strong systems refresh cycle to continue through the first half of fiscal 2027, according to its earnings release and call. Management said systems growth would be stronger in the first half, before the refresh cycle's impact slows in the second half. It estimated full-year systems growth at a high single-digit rate. In premarket trading on October 28, the stock fell 6.6% after the results and outlook were released, according to Investing.com. That move does not establish the stock's performance for the full trading session.
F5 forecast a gross margin, on its non-GAAP measure, of between 80.5% and 82.5% in fiscal 2027. That compares with a margin of 84% in the fourth quarter of fiscal 2026, according to Investing.com. The coverage attributed the expected margin pressure to higher component costs and increased investment in sales capacity. The company said on its earnings call that the margin range reflected higher component costs. The outlook therefore combined continued demand for systems with cost pressures that could limit profitability.
Management did not describe the systems refresh cycle as having ended; it said it would continue through the first half of fiscal 2027. The expected slowdown in the second half is tied to the cyclical nature of systems refreshes, while the full-year systems growth forecast remains at a high single-digit rate. Management also linked demand to adoption of hybrid and multicloud environments, an expanding threat landscape and AI inference. It said these factors were "accelerating" demand. It also cited AI readiness and capacity expansion among the drivers of systems demand.
On the software side, F5 expects double-digit growth in fiscal 2027, with stronger performance in the second half because of the timing of subscription renewals. The company completed its transition away from some older offerings, and annual recurring revenue from software-as-a-service and managed services reached $211 million at the end of fiscal 2026, up 14% from the prior year. Core annual recurring revenue for these services grew 24% year over year, management said on the earnings call. These figures put recurring software growth alongside the more moderate systems outlook. They also make subscription renewals a factor in the expected timing of growth in the coming fiscal year.
Investing.com also reported that Piper Sandler cut its rating on the stock from Overweight to Neutral on October 28 and set a price target of $461. The coverage said the downgrade added to pressure on the stock in premarket trading. It came alongside the company's forecast of a lower gross margin than the level recorded in the fourth quarter and slower systems growth in the second half of fiscal 2027. By contrast, management maintained its forecast for double-digit software growth, with a stronger acceleration in the second half driven by the timing of subscription renewals. The company's next outlook centers on the path of the systems refresh cycle and subscription renewals during fiscal 2027.