FFIV Q3 Deep Dive: Security Incident Overshadows Solid Revenue Momentum

Application security provider F5 (NASDAQ:FFIV) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.5% year on year to $810.1 million. On the other hand, next quarter’s revenue guidance of $755 million was less impressive, coming in 4.7% below analysts’ estimates. Its non-GAAP profit of $4.39 per share was 10.6% above analysts’ consensus estimates.

Is now the time to buy FFIV? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

F5’s third quarter was marked by robust revenue growth supported by data center reinvestment and demand for hybrid cloud and AI infrastructure. However, the market reacted negatively following management’s disclosure of a recent security incident impacting its BIG-IP product line. CEO François Locoh-Donou acknowledged, “We are disappointed that this happened and very aware...of the burden that this has placed in our customers who have had to work long hours to upgrade.” While product refreshes and competitive takeouts drove strong sales, near-term business disruption from the incident weighed on investor sentiment.

Looking forward, F5’s guidance reflects caution amid expected near-term sales cycle disruptions as customers address security upgrades and remediation. Management highlighted that the majority of the impact should be contained in the first half of the year, with trends normalizing later. Locoh-Donou explained, “We are fully focused on mitigating that impact while doubling down on the value we deliver to our customers.” Ongoing investments in security, product innovation, and AI-driven solutions are expected to shape F5’s trajectory, but management remains prudent about the pace of recovery.

Key Insights from Management’s Remarks

F5’s management attributed the quarter’s growth to ongoing product refresh cycles, increased AI infrastructure demand, and customer adoption of its application delivery platform, while acknowledging the business risks posed by the recent security breach.

• Security incident response: Management quickly activated incident response protocols after detecting a threat in August, prioritizing containment, investigation, and rapid delivery of software updates to address vulnerabilities in BIG-IP devices. Customers appreciated the transparency and speed of F5’s communication and patch releases.
• AI and hybrid cloud momentum: The company benefited from secular trends such as enterprise adoption of hybrid multicloud architectures and rising infrastructure requirements for AI workloads. More than 30 new AI-related customer wins were cited for enabling secure, scalable AI workflows.
• Product refresh and tech cycle: F5’s growth was driven by a strong hardware refresh cycle, with over half of its installed base still on legacy systems nearing end-of-support. Approximately two-thirds of systems revenue came from tech refreshes, while one-third was tied to new capacity for AI and data sovereignty use cases.
• Shift in software revenue mix: Subscription-based software revenue saw a modest decline due to customer preferences for hardware in specific scenarios and the transition of legacy SaaS offerings. However, term-based software subscriptions and SaaS adoption among large customers continued to expand.
• Leadership and security investments: Michael Montoya, a recognized cybersecurity expert and former board member, joined as Chief Technology Operations Officer to drive security enhancements. F5 also acquired CalypsoAI to strengthen its AI security capabilities, launching new offerings such as AI Guardrails and AI Red Team.

Drivers of Future Performance

Management expects near-term headwinds from the security incident but sees ongoing demand for hybrid cloud and AI security as longer-term growth drivers.

• Sales cycle disruptions: Management anticipates that customer focus on remediation and security assessments will temporarily slow new project activity, especially in the first half of the year. This includes delays in approvals and resource allocation from both F5 and its customers, but recurring revenue streams are expected to remain resilient.
• Ongoing security investments: Significant resources are being devoted to strengthening F5’s security posture, including code auditing, new trust centers, and collaborations with cybersecurity partners. These efforts are expected to restore customer confidence and position F5 as a trusted provider, though they may contribute to higher operating expenses in the near term.
• AI-driven growth opportunities: The company believes that increased enterprise adoption of AI and hybrid cloud solutions will drive future demand for its application delivery and security platform. Management highlighted that wins in AI use cases and rising SaaS adoption among large customers support expectations for a return to growth as incident-related impacts subside.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be monitoring (1) the pace at which customers complete BIG-IP security upgrades and return to normal purchasing cycles, (2) progress in recapturing software and hardware momentum as remediation efforts wind down, and (3) the effectiveness of F5’s new AI security offerings in winning enterprise deals. Successful integration of CalypsoAI’s technology and continued SaaS adoption will also be important milestones.

F5 currently trades at $267.53, down from $290.41 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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