F5's Strong Q1 Overshadowed by Supply Chain Challenges Hampering Guidance; Maintaining $220 FVE

We are maintaining our $220 fair value estimate for narrow-moat F5 after its first-quarter revenue growth was in line with, and adjusted earnings were higher than, our expectations. While the quarter was generally strong, F5's shares were battered in afterhours trading, falling 13% to $192, due to F5 lowering its expectations for fiscal 2022 revenue growth due to supply chain challenges. The second-quarter guidance was much lower than our expectations; however, we believe this is a near-term issue that could create an attractive entry point for long-term investors. We think the demand for solutions that enable application delivery and secure applications have strong durable tailwinds, and that the second-quarter and fiscal 2022 guidance decline are solely due to not being able to build and supply systems. We believe F5 possesses robust customer switching costs as an essential part of the networking and security for organizations and that potential customer attrition will be muted as the entire industry works through challenges in procuring networking chips, and that revenue growth will snap back as F5 works through its backlog.