EUR 850.00 For Business Accounts Only

Morningstar | Structural Shifts Make F5 Outlook Bleak Longer Term

F5 Networks is a leader in the application delivery controller, or ADC, market, with 40% share. Its products have gained wide recognition among midsize and large organizations as well as service providers for the ability to manage and secure traffic transmitted along IP networks. Although it is entrenched, we think its core market will eventually shrink.In short, F5's hardware and software appliances serve as an intelligent coordinator of network traffic between the outside world and internal data center. These products are quite complex. Because of their enterprise nature, F5 appliances are most commonly used by larger organizations operating with a significant web presence and myriad sites.F5 has been extremely successful at expanding its ecosystem of products and organically expanding the ADC market. It has also consistently entered into adjacent markets through acquisitions, building up a portfolio of network traffic management and protection solutions that cohesively work with one another.As a result of product complexities and architectural positioning at the forefront of the typical corporate data center, F5 products are very entrenched. With ever-expanding need for remote users to access internal corporate resources, added business requirements for online presence, and an increasing number of data streams flowing in and out of data centers, F5 products sit at the epicenter of traffic flow. Given the time and resources required to deploy and customize F5 installations with all the aforementioned traffic requirements in mind, these products are very sticky.We view F5 as the strongest player in the ADC market, with its security and auxiliary application optimization products being main differentiators. The cloud-based players in this market can’t yet match F5’s sophisticated capabilities. But longer term, we think this will be a moot point as AWS and Azure ADC solutions mature. F5’s incremental functionality will either be co-opted by these vendors or reconfigured to align better with workloads native to the cloud. This poses a significant threat to F5's position, as these providers will be able to deliver similar capabilities for a fraction of the cost.