F5 (Nasdaq: FFIV) shares were down about 20% in trading on October 28, the day after the company forecast slower revenue growth and a lower gross margin for fiscal 2027. GeekWire reported the stock at around $368 late that morning, down from $459 at the previous close, and, citing Barron's, said that put F5 on pace for its biggest one-day drop in more than 13 years.
Revenue for the fourth quarter of fiscal 2026, which ended September 30, rose 13% from a year earlier to $917 million, F5 reported after the market closed on October 27, above the $870 million to $890 million it had forecast in July. Product revenue rose 23%, with systems, F5's hardware, up 29% and software up 19%. Non-GAAP earnings per share were $4.42, against guidance of $4.14 to $4.26.
GeekWire wrote that investors appeared focused on the outlook. The Motley Fool, which had the shares more than 19% lower at 12:51 p.m. ET, reported that Piper Sandler downgraded the stock to neutral from overweight. Both outlets said the shares had risen nearly 80% this year before the report.
A slower year on a bigger base
F5 expects revenue to grow 8% to 9% in fiscal 2027, which ends September 30, 2027, after rising 11% to $3.42 billion in fiscal 2026. F5 forecast non-GAAP EPS of $18.00 to $18.30 and a non-GAAP gross margin of 80.5% to 82.5%, down from 84.0%.
In dollars, the revenue forecast is higher than the one F5 gave at its Analyst & Investor Meeting on May 28, when it expected 7% to 8% growth in fiscal 2026 and upper-single-digit growth in fiscal 2027. Fiscal 2026 revenue topped the high end of that forecast by about $82 million, so the new range points to $3.69 billion to $3.72 billion for fiscal 2027, by SaasBuzz's calculation, against at most $3.67 billion on May's figures. Earnings beat May's forecast too, $17.49 a share against about $16.25 to $16.55, so the new EPS range is only 3% to 5% above fiscal 2026.
Measure | FY26 result | FY27 forecast, May 28 | FY27 forecast, October 27 |
|---|---|---|---|
Revenue growth | 11% | Upper single digits | 8% to 9% |
Systems growth | 31% | Mid to upper single digits | Upper single digits |
Software growth | 8% | Double digits | Double digits |
Non-GAAP gross margin | 84.0% | 80% to 82% | 80.5% to 82.5% |
Non-GAAP operating margin | 35.1% | 33% to 35% | 33% to 35% |
Non-GAAP EPS | $17.49 | Upper-single-digit growth | $18.00 to $18.30 |
Source: F5's fourth-quarter earnings presentation and its May 28 investor presentation.
Hardware carried the past two years
Systems revenue rose 72% in two years, from $537 million in fiscal 2024 to $923 million in fiscal 2026, while software revenue rose 18% to $870 million, by SaasBuzz's calculation. In fiscal 2026, systems outsold software for the first time since fiscal 2023, F5's presentation shows. Services grew 1% to 4% from a year earlier in each of the past eight quarters.
Quarter (ended) | Systems ($M) | Software ($M) | Services ($M) |
|---|---|---|---|
Q1 FY25 (Dec 2024) | 160 | 209 | 398 |
Q2 FY25 (Mar 2025) | 179 | 158 | 394 |
Q3 FY25 (Jun 2025) | 181 | 208 | 392 |
Q4 FY25 (Sep 2025) | 186 | 229 | 396 |
Q1 FY26 (Dec 2025) | 218 | 192 | 412 |
Q2 FY26 (Mar 2026) | 226 | 184 | 401 |
Q3 FY26 (Jun 2026) | 240 | 223 | 402 |
Q4 FY26 (Sep 2026) | 239 | 271 | 408 |
Source: F5's quarterly results releases.
Software swings more from quarter to quarter; $42 million of perpetual licenses, against $30 million a year earlier, lifted the fourth quarter.
What F5's executives said
Cooper Werner, F5's chief financial officer, said on the October 27 call that the refresh cycle behind fiscal 2026 would last into the first half of fiscal 2027, according to a transcript published by The Motley Fool. Refresh deals made up about two-thirds of systems business over the past two years, he said. Revenue from replacing older equipment will decline in the second half as end-of-software-support dates pass, he said, so systems growth will be strongest early in the year and software growth, which tracks term renewals, later.
Werner said the gross margin range reflects “higher component costs.” F5 has been building inventory and paying suppliers in advance, especially for memory and storage, which he said F5 saw as most at risk. Inventory reached $262 million at September 30, from $77 million a year earlier, and F5's presentation ties fourth-quarter operating cash flow of $118 million, against $208 million a year earlier, to those purchases. In May, F5 said elevated component costs would cause “a temporary reduction” in gross margin, which it expects to improve after fiscal 2027.
François Locoh-Donou, F5's chairman, president and CEO, said F5 will more than double its AI security marketing in 2027 and that every field seller will have pay incentives to raise AI security with customers:
The specialist seller headcount that we have will be doubling in 2027.François Locoh-Donou, chairman, president and CEO of F5, on the October 27 results call
Werner said growth investment, chiefly sales hiring that includes those specialists, was the biggest driver of the rise in operating expenses; GAAP sales and marketing expense rose 27% in the quarter. F5 said bookings from its direct AI use cases passed $100 million in fiscal 2026, up about 300%, most of them, Locoh-Donou said, in AI data delivery, which moves data between storage and AI computing. William Blair analysts wrote that AI had yet to add meaningfully to revenue, GeekWire reported.
What to watch
For the first quarter of fiscal 2027, which ends December 31, F5 forecast revenue of $875 million to $895 million, 6% to 9% above a year earlier, and non-GAAP EPS of $4.25 to $4.37, below the $4.45 it earned a year earlier. Werner said the sales and marketing push is largely what drives first-quarter spending. The board added $1.5 billion to F5's buyback program, on top of $322 million remaining.
