Cybersecurity services provider Fortinet (FTNT) reports strong results; Shares surge

Shares of Fortinet (NASDAQ: FTNT) jumped over 8.5% in early Wednesday trade following the company’s better-than-expected Q4 earnings and revenue.

The cybersecurity firm posted Q4 earnings per share (EPS) of $0.51, beating the consensus estimates of $0.43. Revenue came in at $1.42 billion, up 10% year-over-year, and surpassing the projected $1.41 billion.

Service revenue saw a significant jump of 25% YoY to $927.0 million, exceeding the predicted $914.8 million. However, product revenue declined by 9.6% YoY to $488.1 million, falling short of the anticipated $498.1 million.

Deferred revenue grew by 24% YoY to $5.74 billion, outperforming the estimate of $5.5 billion. Billings reached $1.86 billion, marking an 8.5% increase YoY, surpassing the expected $1.62 billion.

The adjusted operating margin remained stable at 32%, compared to 32.5% the previous year, and was higher than the expected 27.9%.

Fortinet projects its EPS for the first quarter of 2024 to be between $0.37 and $0.39, aligning with the average analyst expectation of $0.37. The company anticipates Q1 revenue to range from $1.3 billion to $1.36 billion, slightly below the analyst consensus of $1.37 billion.

Billings are seen ranging from $1.39 billion to $1.45 billion in the first quarter, compared to the consensus estimates of $1.47 billion.

For the full year 2024, Fortinet forecasts its EPS to be in the range of $1.65 to $1.70, closely matching the consensus estimate of $1.67. The company's expected revenue for the year is projected to be between $5.715 billion and $5.815 billion, short of the consensus forecast of $5.93 billion.

Full-year billings are anticipated to be in the range of $6.40 billion to $6.60 billion, while analysts guided for $6.52 billion.

“In the fourth quarter of 2023, Security Operations billings grew 44% year over year and SASE billings increased 19% year over year, driven by our successful sales strategy shift and the improved execution of our sales teams,” said Ken Xie, Founder, Chairman and CEO of Fortinet.

HSBC analysts cut their rating on the stock to Reduce in the aftermath of the earnings report.

"We think a slowdown in top-line growth and operating margin erosion will continue for the foreseeable future. We are less optimistic about Fortinet’s end-market demand reaccelerating in 2H24 and 2025e and take a cautious stance," analysts including Stephen Bersey said in a note.

BTIG analyst Gray Powell said the results were "solid" but "curve of recovery remains uncertain."

By Vahid Karaahmetovic

Additional reporting by Senad Karaahmetovic

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