FCESP outline - Fortinet Certified Email Security Professional Updated: 2023

Cybersecurity pure-play leader Fortinet (FTNT -1.25%) got clobbered again after investors were disappointed with another quarterly financial update. The third quarter of 2023 was solid enough. However, the company's product growth (primarily firewalls for things like data centers and remote branch offices) is facing cyclical decline.

Is it time to buy, or is Fortinet stock now a falling knife too dangerous to try to catch?

Fortinet stepping away from its differentiated product, for now

There were two reasons for Fortinet's most latest stock collapse, which has now erased all gains made in 2023. First, management missed its own guidance for Q3 2023 billings (invoices sent to customers). Billings were $1.49 billion, versus the outlook three months ago for them to be $1.56 billion to $1.62 billion.

And second, at the midpoint of new guidance, billings are expected to close out 2023 down 5% from the $1.7 billion reported in Q4 of 2022.

What's happening? After all, cybersecurity is a booming industry. As more organizations migrate their IT over to the cloud, there is incredible demand for next-gen security that can keep data and apps safe.

Primarily, it's Fortinet's big chunk of business tied to product, again, primarily hardware-based firewalls that monitor traffic for a physical location. Product revenue accounted for 35% of the total in Q3. And unfortunately, sales declined 0.6% year over year. Given a deepening down cycle in data center and cloud infrastructure (many customers are doing belt-tightening this year, and reallocating budgets to AI infrastructure), it's no surprise Fortinet believes this segment will remain in a period of decline through the first half of 2024.

But Fortinet is making a pivot toward a new subscription product (services were the other 65% of revenue in Q3) to make up for the hardware downturn. Specifically, it's the SASE (secure access service edge) offering, which it announced a couple weeks prior to the earnings update that it was expanding, utilizing dozens of Alphabet's Google Cloud data centers to strengthen its "Universal SASE."

Fortinet revealed its SASE subscription already represented 20% of billings in Q3, and the company thinks it can grow this offering quickly in the coming quarters and years given the resilient demand for cloud-based security, despite the firewall hardware pullback.

Is this a buying opportunity?

The billings picture looks ugly, but Fortinet management thinks it can still be a single-digit-percentage revenue-growth business through at least Q2 2024. Beyond that, the top team hopes to be back in a mid- to high-teens percentage growth rate once again. And paired with its highly profitable core business, Fortinet believes it can sustain adjusted operating profit margins north of 25% along the way, which should equate to its prior long-term guidance for free-cash-flow profit margins of over 30%.

Data by YCharts.

Of course, I can understand why an investor might doubt this management confidence, given it just missed its guidance two quarters in a row. However, Fortinet would like to remind everyone it has done an exceptional job of clobbering the market since its initial public offering in 2009. That may count for something.

At any rate, it's now up to the top team at Fortinet to execute on this SASE product bridge while the hardware market stabilizes. I expect more turbulence going forward. However, I'm inclined to believe this is still a great business for those eyeing the potential of the cybersecurity market overall in the decade ahead, not a falling knife (at least not for forever).

Fortinet stock now trades for 35 times trailing-12-month earnings, or just 19 times free cash flow. It could be a reasonable value after the market has doled out some punishment, but tread cautiously.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients have positions in Alphabet and Fortinet. The Motley Fool has positions in and recommends Alphabet and Fortinet. The Motley Fool has a disclosure policy.

(MENAFN- PR Newswire) DALLAS, Oct. 19, 2023 /PRNewswire/ -- Global IT solutions provider General Datatech (GDT) announced its latest partner designation from Fortinet, the global cybersecurity leader driving the convergence of networking and security. The Engage Preferred Services Partner (EPSP) designation within Fortinet company's Engage Partner Program demonstrates GDT's proven expertise in deploying, operating, and maintaining end-to-end security solutions. GDT pursued EPSP designation as part of its commitment to helping customers scale and transform their hybrid, cloud, network, and security infrastructure in a rapidly evolving digital landscape.

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"GDT is thrilled to build on our security and networking expertise as a Fortinet Preferred Services Partner. This designation enables us to provide a suite of services across the entire Fortinet portfolio in support of our customers' business and cybersecurity needs," said Jeanne Malone, VP of Security for GDT.

GDT is thrilled to build on our security and networking expertise as a Fortinet Preferred Services Partner

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To achieve the Fortinet Preferred Services Partner designation, GDT demonstrated a high level of service quality and best practices for Fortinet deployment and operations within our client base. Additionally, GDT invested heavily in certifications and process alignment with Fortinet to enable close collaboration with Fortinet professional services and regional sales teams allowing GDT to provide reciprocal consultancy to Fortinet.

"The advanced knowledge and expertise we've gained through Fortinet Preferred Services Partner accreditation enables us to provide incredible value to our clients, who can count on us to accelerate successful business outcomes," said Malone.

As a Fortinet EPSP, GDT receives access to specialized training and direct assistance from Fortinet experts to build new capabilities and offerings providing advanced security support and services for customers, including those with rapidly evolving and expanding hybrid network infrastructures. GDT
can also collaborate directly with Fortinet Professional Support experts on implementations to leverage Fortinet best practices, resulting in increased expertise and visibility while developing a more robust services portfolio.

A Program Focused on Enabling Opportunities for Partners

Fortinet is committed to helping partners meet new and evolving customer challenges created by work-from-anywhere models, hybrid IT environments, and the evolving threat landscape through Fortinet's Engage Partner Program and enablement tools for partners. The program is focused on enabling unique growth opportunities with Fortinet's expansive portfolio built around the Fortinet Security Fabric, designed to secure customers' entire infrastructure from the data center to the cloud.

In addition, Fortinet is committed to helping partners grow productive, predictable, and rewarding relationships to differentiate from competitors. The Fortinet Engage Partner program helps partners acquire the industry knowledge they need to increase business opportunities, deliver digital acceleration for customers with customizable programs, and accelerate partner growth.

About GDT

As a global IT solutions provider, GDT accelerates its clients' digitalization and business goals by transforming and modernizing platforms, networks, and cyber security through industry-leading infrastructure solutions, deep expertise, and flexible service delivery models.

GDT has a 26-year heritage and a global workforce, including its Indian Technology Center in Bangalore, which has grown by over 100 people this year alone. Partners consistently recognize GDT for expertise across its solution stack. GDT maintains over 450 certifications with the world's best-known technology providers. GDT's history, knowledge, and global reach provide the foundation for developing rich, sustainable services and solutions that push its people to the forefront of IT thought leadership and expertise.

For more information on GDT, please visit
.

Media Contact:
Chelsea Brickwedel
Global Director, Marketing
[email protected]

SOURCE GDT

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Fortinet (FTNT -1.25%) stock is getting crushed following the publication of the company's third-quarter results. The company's share price was down 16.6% as of noon ET Friday, according to data from S&P Global Market Intelligence.

Fortinet published its Q3 report after the market closed yesterday, delivering earnings that topped Wall Street's target and sales that fell short of the market's expectations. More importantly, the company also issued worrying guidance and commentary that prompted an uptick in bearish sentiment.

Wall Street sours on Fortinet stock after Q3

Fortinet posted non-GAAP (adjusted) earnings per share of $0.41 on revenue of $1.33 billion. For context, the average analyst estimate had called for earnings of $0.36 per share on sales of $1.35 billion. Sales in the period were still up roughly 16% year over year, but the performance signaled slowing growth -- and commentary from management confirmed that the near-term performance outlook is significantly weaker than many investors and analysts had anticipated.

Following the Q3 release, Fortinet stock ratings and price target downgrades from multiple high-profile investment firms including Stifel and JPMorgan Chase.

What comes next for Fortinet?

For the current quarter, Fortinet is guiding for sales to come in between $1.38 billion and $1.44 billion -- suggesting roughly 10% year-over-year growth at the midpoint of the target. Meanwhile, the average analyst estimate had targeted sales of $1.49 billion for the period.

The midpoint of the company's guidance range came in roughly 5% lower than the midpoint sales target from analysts, and Fortinet's comments suggest there's a risk that sales could come in at the lower end of its forecast range.

Notably, Fortinet is seeing softening demand for its firewall hardware and services. In turn, the company plans to ramp up investment in security operations, its universal secure access service edge, and secure networking offerings. With a core performance driver seeing its momentum slow and investments into new growth drivers, it's reasonable to expect that sales and earnings performance could be pressured in the near term.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet. The Motley Fool has a disclosure policy.