F5 (FFIV) Q4 2026 earnings review
F5's product sales grow fast, but rising costs squeeze profit
F5, which sells hardware and software that direct and secure application traffic, grew fourth-quarter sales fast while its profit barely moved. Revenue rose 13% from a year ago as software accelerated alongside strong appliance demand, and chief executive François Locoh-Donou set an 8% to 9% sales growth plan for fiscal 2027. However, rising sales expenses and a tripling of inventory cut into margins and cash flow, and by our math the new outlook has profit per share excluding one-offs growing 4%.
| Revenue | $917.4M +13.3% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $4.42 +0.7% from a year ago |
| FY27 revenue growth outlook | 8–9% 10.6% in FY26 |
| FY27 profit per share outlook, excluding one-offs | $18.00–18.30 middle of the range: +3.8% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because strong top-line demand and a software rebound are offset by a squeeze on profit margins and cash. The good news: software sales beat what the full-year plan pointed to, and the board added $1.5 billion to the buyback program. The bad news: operating costs ran $20 million above the top of the fourth-quarter plan by our math, and next year's profit outlook grows less than half as fast as sales.
The question now is whether next year's slow profit growth reflects cautious planning on memory component costs or a lasting jump in operating expenses. If it is component caution, F5 can raise its profit outlook as it passes costs to customers; if sales and research spending stay high, margins will keep shrinking. Management's gross margin target on the conference call and first-quarter operating expenses will tell.
🐂 Bull Case
Software Sales Finally Picked Up
F5 sells software subscriptions alongside its physical server appliances, and software growth had trailed hardware all year. In the fourth quarter, software revenue rose 19% from a year ago to $271 million, lifting full-year software growth to 8%. By our math, that beat the $236 million to $252 million range implied by the company's own full-year software target.
The jump helps ease fears that F5's hardware boom was taking sales away from its software business. However, this quarter compared against a weak year-ago period when software barely grew, so one strong reading against an easy comparison does not yet prove a lasting turnaround.
What to watch: first-quarter software revenue on the next earnings release. Another quarter of double-digit growth would show that multi-year subscription renewals are genuinely lifting the business.
Hardware Refresh Kept Carrying Product Growth
"Nine consecutive quarters of double-digit product revenue growth reflect F5's expanding strategic role as our customers navigate hybrid multicloud complexity, an intensifying threat landscape, and a rapidly evolving AI-driven world," chief executive François Locoh-Donou said. F5 sells systems — physical appliances that direct and secure network traffic — and customers are replacing older machines before software support ends in early 2027. Skeptics worry that sales will drop once that replacement wave finishes.
- Fourth-quarter systems revenue: $239 million, up 29% from a year ago
- Full-year systems revenue: $923 million, up 31% from a year ago
- Fiscal 2027 revenue outlook: 8% to 9% growth
Systems revenue held steady at $239 million compared with $240 million in the third quarter, even as it lapped a 42% jump a year earlier. More important, the new 8% to 9% revenue growth plan for fiscal 2027 backs up Locoh-Donou's claim that demand will hold up across the year.
What to watch: systems revenue in the second half of fiscal 2027, after software support ends for older appliances in the second quarter. Holding growth then would show that new capacity and AI workloads can replace the upgrade cycle.
A New $1.5 Billion Buyback Plan
F5 pledges to return at least half of its annual free cash flow to shareholders through stock buybacks. In fiscal 2026, the company spent $601 million repurchasing shares, or 69% of its $869 million in free cash flow by our math, reducing its diluted share count by 1.3% in the fourth quarter.
With only $322 million left under the prior plan, the board approved an additional $1.5 billion for share repurchases, giving F5 $1.82 billion in total capacity. What to watch: first-quarter buyback spending on the next cash flow statement, where a step-up would help offset slower operating profit growth.
🐻 Bear Case
Higher Sales Spending Cut Into Margins
F5 beat its fourth-quarter revenue target by $37 million, but almost none of that extra revenue reached the bottom line. Profit per share, excluding one-offs, edged up 0.7% from a year ago to $4.42, while operating margin excluding one-offs fell 3.3 percentage points to 33.7%. By our math, operating expenses excluding one-offs reached $462 million, running $20 million above the top of the company's $430 million to $442 million plan.
- Sales and marketing: 29.9% of revenue, up 3.2 percentage points from a year ago
- Research and development: 17.9% of revenue, up 1.1 percentage points
- Fiscal 2027 profit per share outlook: $18.00 to $18.30, up 3.8% at the middle of the range
This spending squeeze carries into next year. Although F5 plans for 8% to 9% revenue growth in fiscal 2027, its profit per share outlook grows less than half as fast, and first-quarter profit per share is set to fall 3.1% from a year ago at the middle of the range.
What to watch: first-quarter operating margin and any full-year margin target given on the conference call. Continued cost growth above revenue growth would confirm that higher component and sales costs are eating into F5's profitability.
Inventory Tripled and Cut Free Cash Flow
To guard against memory and storage shortages for its hardware appliances, F5 has been buying components in advance. In the fourth quarter, that stockpile swelled: balance-sheet inventory more than doubled from the third quarter to $262 million, up 239% from $77 million a year ago.
Buying those parts tied up $160 million of cash across fiscal 2026, including $110 million in the fourth quarter alone by our math. Together with a doubling of capital spending on property and equipment, the inventory build cut fourth-quarter free cash flow in half from a year ago to $91 million, leaving full-year free cash flow down 3% despite 11% revenue growth.
What to watch: inventory levels on the first-quarter balance sheet. Another increase as hardware comparisons get tougher would mean F5 is holding excess stock that could hurt future margins.
Deferred Revenue Additions Slowed While Services Lagged
Deferred revenue — cash billed to customers for maintenance and subscriptions not yet recognized as sales — had been growing fast on the back of strong appliance shipments. F5 expected those contracts to eventually lift its services revenue, which has been stuck at 3% growth.
In the fourth quarter, services revenue grew 3% from a year ago to $408 million, and the buildup of deferred revenue slowed. By our math, total deferred revenue rose by $12 million from the third quarter to $2.20 billion, down from a $42 million fourth-quarter addition a year ago, slowing its yearly growth rate from 12% to 10.3%.
What to watch: services revenue growth in the first quarter. If services stay near 3% while deferred revenue growth slows, new hardware maintenance is only replacing retiring contracts rather than adding growth.
Risks this quarter didn't answer
Locoh-Donou said artificial intelligence is "accelerating vulnerability discovery to machine speed, expanding the attack surface through APIs and AI agents, and collapsing the time available to respond", but the press release left four standing concerns without numbers.
- Direct AI revenue: no full-year dollar figure appeared in the release after management previously floated a year-end update; check the conference call remarks.
- Fiscal 2027 gross margin outlook: missing from the release after management previously set an 80% to 82% range on memory cost concerns; check the call.
- Cyber incident litigation: fourth-quarter remediation costs were $1.5 million with $4.7 million in insurance recoveries, while lawsuit updates await the annual Form 10-K filing.
- Regional sales and distributor concentration: geographic revenue splits and customer concentration percentages await the call presentation and Form 10-K.
💲 Other KPIs
Money owed by customers for billed sales rose 8.3% from a year ago and 4.7% from the third quarter. Because receivables grew slower than the 13.3% rise in fourth-quarter revenue, customer collections remained healthy and did not cause the quarter's cash flow drop.
Spending on property and equipment more than doubled from $43.3 million in fiscal 2025, rising from 1.4% of revenue to 2.6% by our math. In the fourth quarter alone, capital spending was $26.8 million by our math, reducing free cash flow alongside the inventory buildup.
The network security group recorded $10.3 million in acquisition-related charges and $7.4 million in restructuring costs for workforce and facility reductions in the fourth quarter. For the full year, acquisition charges more than tripled to $39.2 million following the CalypsoAI purchase, which F5 excludes from its non-GAAP results.
🔮 Guidance
Unchanged. The initial numeric plan calls for 8% to 9% revenue growth in fiscal 2027, matching management's earlier pledge of upper-single-digit growth. That represents a slowdown from 10.6% growth in fiscal 2026 as the hardware business laps 31% full-year growth. By our math, after the first-quarter plan of 7.6% growth, the outlook leaves 8.8% growth for the rest of the year.
New. The plan calls for profit per share excluding one-offs to grow 3.8% at the middle of the range, down from 10.6% growth in fiscal 2026. By our math, after a planned first-quarter decline, the full-year target requires 6.1% profit per share growth over the rest of the year. The gap between 8.5% revenue growth and 3.8% profit growth implies lower margins or a higher tax rate.
New. The first-quarter plan points to 7.6% growth from a year ago and a 3.5% drop from the fourth quarter at the middle of the range, by our math. First-quarter hardware sales face a tough comparison against a 37% jump a year earlier. F5 beat its quarterly revenue target midpoint by an average of 5.4% over the last four quarters; if the pattern holds, first-quarter revenue would land near $933 million.
New. At the middle of the range, the plan has profit per share excluding one-offs falling 3.1% from a year ago and 2.5% from the fourth quarter, by our math. Higher operating expenses and component costs weigh on first-quarter earnings before the full-year plan assumes a recovery in the remaining three quarters.
❓ Key Questions
What was direct AI revenue for fiscal 2026?
Management disclosed $50 million in direct AI sales for the first half of fiscal 2026 and suggested it might give another figure at year-end. Without a full-year dollar figure on the call, investors cannot tell how much AI is contributing to the 8% to 9% growth plan.
Why does fiscal 2027 profit grow half as fast as sales?
The fiscal 2027 outlook pairs 8% to 9% revenue growth with 3.8% growth in profit per share excluding one-offs, by our math. Management did not include gross margin, operating margin or tax rate targets in the release to show where the compression comes from.
Why did balance-sheet inventory double in one quarter?
Inventories jumped from $127 million in the third quarter to $262 million at year-end, cutting fourth-quarter free cash flow in half. Investors need to know whether F5 bought memory components ahead of price rises or if hardware shipments slipped at quarter-end.
Why did fourth-quarter operating costs run $20 million over plan?
By our math, fourth-quarter operating expenses excluding one-offs reached $462 million against a planned $430 million to $442 million, with sales and marketing jumping 27% from a year ago. Was that driven by one-off sales commissions on the revenue beat or permanent hiring?