F5 Networks Snaps Up Volterra for $500M to Create an Edge Platform

Application security and delivery company F5 Networks has inked a deal to acquire Volterra, a California-based provider of a distributed cloud services platform for network and secure applications deployment across multi-cloud and the edge. Shares rose 6.8% on Jan. 8 in reaction to the news.

F5 (FFIV) is acquiring edge-as-a-service platform Volterra for about $440 million in cash and about $60 million in deferred payment and assumed unvested incentive compensation to founders and employees. Through the addition of Volterra, the company intends to create an edge platform for enterprises and service providers that will be “security-first and app-driven with unlimited scale.”

The transaction has been approved by the boards of directors of both companies and is expected to close in the first quarter of 2021.

With the addition of Volterra, F5 now expects total revenue growth (CAGR) of 7%-8% in what the company calls “Horizon 2” (fiscal 2021-fiscal 2022), up from its previous forecast of an increase of 6%-7%. Also, it anticipates long-term revenue growth of double digits compared to the previous target of 8%-9%. It continues to see double-digit adjusted EPS growth in Horizon 2. (See FFIV stock analysis on TipRanks)

The company also stated that it anticipates revenue (preliminary numbers) for the first quarter of fiscal 2021 of $623-$626 million, implying about 10% year-over-year growth driven by a 68% (70% on adjusted basis) jump in software revenue. It expects 1Q adjusted EPS to be at the top-end of its previous guidance of $2.26-$2.38.

Needham analyst Alex Henderson boosted his 2020 and 2021 revenue and earnings estimates for F5 following the news of the Volterra acquisition. The 5-star analyst reiterated a Buy rating on F5 and bumped up the price target to $235 from $210. Henderson is optimistic about the Volterra acquisition as he feels that “F5 lacked a true cloud SNaaS (Secure Network as a Service), which limited its market reach.”

“This acquisition further drives the DevOps/Coders teams ability to achieve increased agility in application deployment and reduced friction. It should support the strong adoption of NGINX in Kubernetes and micro-services based deployments. It also should help tie these deployments into the more hybrid environments and drive and strengthen demand for F5’s BIG-IP platforms,” added Henderson.

Overall, 8 Buys and 5 Holds add up to a Moderate Buy analyst consensus for F5. Shares have risen over 40% over the past 52 weeks and the average price target of $204.10 indicates upside potential of 6.7% from current levels.

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