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Harness the Engine Behind Netflix

FFIV should have good news in store in a couple weeks

Netflix (NASDAQ:NFLX) is rallying, but it’s not the only player in the game anymore, with Hulu Plus and HBO Go on the scene. I certainly can’t say whether NFLX’s success will continue or whether it will turn into a Blockbuster bust, but I do know this — the world is in love with instant entertainment.

F5 Networks (NASDAQ:FFIV) makes content management hardware and software that makes the Internet work like we expect it to work — smooth and fast. When you click the Netflix icon on your iPad and wait to start watching a Mad Men episode, in the background is a FFIV controller at the media company’s data farm, searching for the right bits in the right server and directing its path back to you in the fastest and most efficient way possible. The more content — and the greater the public’s demand for receiving it quickly — the more demand for FFIV products.

Shares came down with the rest of technology, but the company tends to report a strong Q3 and the stock has historically responded well.

The stock did dip down slightly when investors in the world of tech hardware were spooked by the Hewlett-Packard (NYSE:HPQ) pre-announcement of weaker Q3 results.

HP has a large PC business that is struggling with commoditization, but it also competes in some of the same spaces as FFIV in network and storage hardware and software. However, FFIV is a much more nimble company because it is based on an open architectural framework that companies with a far wider reach than Netflix have adapted to their needs, including the five top U.S. airlines, the 15 U.S. executive branches, and 44 companies of the Fortune 50. Microsoft (NASDAQ:MSFT) and Oracle (NASDAQ:ORCL) also have strategic partnerships with F5 Networks.

The company has a long history of reporting earnings well above expectations, but it is a very volatile stock, so expect it to jiggle around a lot. By the time earnings are reported on Oct. 24, I expect the position to be very lucrative

Recommendation: Buy FFIV.

Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily swing trading newsletter, Trader’s Advantage.

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