Fortinet today announced new security operations center (SOC) augmentation services designed to help strengthen an organization’s cyber resiliency and support short-staffed teams strained by the talent shortage. In addition, as part of Fortinet’s leadership efforts to help close the cyber skills gap, the Fortinet Training Institute has added initiatives across its programs to further increase access to its industry-recognized training and certifications.

Cybersecurity Skills Shortage Prompts a New Approach

The prevailing talent shortage remains one of the top challenges facing SOC teams globally. Fortinet’s 2022 Cybersecurity Skills Gap report found that 50% of global leaders cite security operations as one of the most challenging roles to fill, and 42% are still in need of security operations analysts. Additionally, the same Fortinet survey found that worldwide, 80% of organizations suffered one or more breaches due to a lack of cybersecurity skills and awareness.

A lack of resources and personnel, combined with the sheer volume of security alerts SOC teams receive per day, often results in missed detections and slower responses that increase exposure to cyber risk. SOC teams require an immediate solution to mitigate these challenges through investment in automated and integrated SOC and cybersecurity technologies and experienced professionals to better protect against threats.

New and Enhanced SOC Augmentation Services Provide Immediate Support for Short-Staffed Security Operations Teams

Committed to helping organizations overcome these obstacles, Fortinet’s new and enhanced services help SOC teams reduce their organizations’ cyber risk while freeing up their time to focus on higher-priority projects. These updates include:

• SOC-as-a-Service (SOCaaS): Fortinet has expanded its SOCaaS offering, which blends FortiGuard cybersecurity experts with Fortinet advanced SOC technology by adding more artificial intelligence (AI) and machine learning (ML) capabilities to additional use cases. These updates enhance the offering’s ability to aggregate security alerts in one single cloud-based dashboard for customers to view actionable intelligence and accelerate resolution, and further enables security operations teams to offload monitoring and detection to Fortinet security experts. With this approach, Fortinet speeds up alert triage, rapidly escalates security incidents, and reduces false-positive alerts for customers.
• Outbreak Detection Service: A new outbreak detection service is available to customers that alerts subscribers through email as well as automatically within key product user interfaces to major breaking cybersecurity events that have the potential for widespread ramifications. These alerts include critical information about security incidents, such as an attack’s timeline of events and what specific technology has been affected. In addition, the alerts also provide organizations with custom threat hunting to run against logs and identify the potential impact of an attack, as well as recommendations to Boost their security posture for better protection in the future.
• Incident Response and Readiness (IR&R) Services: Fortinet recently added cybersecurity readiness services as part of its Incident Response offering and shifted the purchasing model to prioritize prevention. By providing a suite of proactive prevention-oriented services, such as risk assessments, playbook development, and tabletop exercises as part of the Incident Response and Readiness Services retainer, organizations can strengthen their cyber preparedness, SOC effectiveness, and reduce cyber risk, while still having access to a team of FortiGuard experts to help with rapid containment and remediation in the event of a cyberattack. In response to an accelerated demand for these services around the globe, Fortinet is also expanding its headcount dedicated to IR&R and SOC automation capabilities to allow more enterprises to have access to the offering.

Vishak Raman, Vice President of Sales, India, SAARC & Southeast Asia at Fortinet, said, “Fortinet builds ML-driven automation into all of its SOC offerings to support short-staffed teams affected by the cybersecurity skills shortage. But technology alone won’t solve this issue, which is why we are dedicated to also delivering human-based SOC augmentation services to provide immediate support, while investing in an industry-leading training institute to close the cybersecurity skills gap. This combination of technology, services, and training enables SOC professionals to better protect their organizations from detection to incident recovery.”

Expanding Cyber Skills Through the Fortinet Training Institute

While the new and enhanced SOC augmentation services provide immediate relief to strained teams, a long-term investment in continued learning and advancing cyber skills is just as critical to keep up with the ever-changing threat landscape. As part of Fortinet’s longstanding commitment to eliminate the skills gap, the Fortinet Training Institute offers award-winning, multi-level training and certifications to security professionals seeking to advance and upskill their knowledge in key cybersecurity areas. These programs also help untap new talent pools to help build the cyber workforce of the future, with a focus on providing training opportunities for women, veterans, students, and underserved populations. Some recent updates across programs include:

• Increasing Access to Advanced Technical Training: Fortinet has made the practical exam for NSE level 8 more accessible for IT and security professionals everywhere. Both the written and practical portions of the exam are now available in an online, proctored format, making the highest and most elite level of the Network Security Expert (NSE) Certification program more accessible to security professionals around the world.
• Supporting the Advancement of Women Professionals in Cybersecurity: The first women cohort of the Fortinet and Women in Cybersecurity (WiCyS) bootcamp completed the program, which offered 100 WiCyS members access to Fortinet’s NSE level 4 training and labs for free, technical mentors, exam vouchers, and more. Fortinet has also awarded five of the program participants with scholarships to attend the annual WiCyS Conference March 16–18, where they will have access to cyber leaders and employers.
• Developing Cybersecurity Skills in Youth: To further develop the cyber workforce of the future, Fortinet is sponsoring various cybersecurity-based competitions for students in varying academic levels, ranging from middle school to college. This includes being a platinum sponsor of MITRE Engenuity’s Embedded Capture the Flag (eCTF) 12-week competition and a category sponsor for the Carnegie Mellon Capture the Flag competition.

Through these initiatives, Fortinet is progressing toward the company’s pledge to train 1 million people in cybersecurity by 2026. Additionally, Fortinet’s new and enhanced SOC augmentation services build on its expansive services portfolio backed by FortiGuard Labs. With today’s announcement, Fortinet remains committed to alleviating the challenges associated with the cybersecurity talent shortage by helping organizations better manage cyber risks with ML-driven automation, services, and increased access to training.

© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Investment Thesis

Fortinet, Inc. (NASDAQ:FTNT) is a U.S.-based cybersecurity company founded by Xie Jing back in 2000. The company has been one of the best compounders in the past decade, with the stock up over 1,000% during the period. The share price has also been holding up well despite the broad market selloff.

Cybersecurity has a massive TAM (total addressable market) and continues to benefit from secular tailwinds. It is one of the most resilient industries that capture non-discretional spending. The company is also expanding its TAM by entering other verticals, which should open up more growth opportunities moving forward. Some investors are skeptical about the company's prospects, as it generates a large portion of revenue from on-premise products, but the segment continues to grow rapidly despite the shift to cloud security. This is reflected in its latest fourth quarter earnings reported yesterday with upbeat product growth and profitability. The current valuation also isn't too expensive on a historical basis, especially when considering the growth it is showing. Therefore I rate Fortinet, Inc. as a buy.

Huge Market Opportunity

Cybersecurity is a massive and fast-growing market. According to Grand View Research, the TAM for the industry is $222.66 billion in 2023 and is forecasted to grow to $500.7 billion in 2030, representing a CAGR (compounded annual growth rate) of 12.3%. Fortinet estimates its own TAM to be $153 billion in 2023, and it should grow at a CAGR of 10% to $199 billion in 2026. While network security often seemed to be overlooked due to the shift to cloud, it actually accounts for $22.5 billion of the TAM. although it is growing at a slower rate. The company's expansion into new markets like cloud security and zero trust also added nearly $40 billion in TAM, and these segments are also growing much faster. Fortinet's current penetration rate is only around 2.4% despite being such a large company.

The industry is growing quickly due to digital transformation and IoT (internet of things). The penetration rate of the internet and cloud has increased significantly in the past few years which also increased the number of cyberattacks. This vastly increased the demand for more sophisticated cybersecurity solutions as the cost of cyberattacks is huge, especially for big firms. While cloud security benefits from workloads shifting to the cloud, network security is also relevant as many companies are adopting a hybrid approach. Companies still need firewalls and the company dominates in this space. The industry is also seeing a consolidation in vendors as customers want to reduce complexity. This benefits larger vendors like Fortinet as it has a broad product portfolio that addresses different areas.

Keith Jensen, CFO, on vendor consolidation:

There's been an explosion of devices that must be connected to the cloud, data center and edge compute. As a result, the infrastructure has expanded to support secure connectivity via distributed firewalls, it is no longer feasible to overlay security on top of networking in the data center. They must be deployed as a converged solution. Firewalls need to work seamlessly with networking and security applications across the company's entire infrastructure. Fortinet is leading the convergence trend with a wide range of technologies, including network firewalls, Secure SD-WAN, 5G and OT security, all embedded in our single operating system delivered as hardware, software, cloud and as a service.

Q4 Earnings

Fortinet just reported Q4 earnings, and I think the results are very strong considering the macro environment, especially product revenue and the bottom line. The company reported revenue of $1.28 billion, up 33.1% YoY (year-over-year) compared to $963.6 million. The growth is mainly driven by product revenue, which increased 42.5% from $378.9 million to $540.1 million, now accounting for 42.2% of total revenue. During the year, it added over 23,000 new customers for its firewall products. Service revenue grew 27.1% YoY from $584.7 million to $742.9 million, driven by the increase in security subscriptions. Billings for the quarter was $1.72 billion, up 31.6% YoY. Gross profit was $985.7 million compared to $735.3 million with the gross margin flat YoY.

Ken Xie, CEO, on FY22 results:

For the full-year, revenue growth accelerated to 33%. We continue to gain market share in the service security industry with customers increasingly recognizing how Fortinet integrate and a single platform approach to security delivers along total cost of ownership and a greater return on investment than competing solutions.

The bottom line is extremely impressive as the company continues to show strong operating leverage. Despite revenue up over 33%, operating expenses only increased by 20.7% to $627.9 million. This is mostly contributed by S&M (sales and marketing) expenses which grew 24% YoY from $367.7 million to $455.9 million. The discipline in operation spending resulted in operating income increasing over 66.5% YoY from $214.9 million to $357.8 million. Operating margins also improved significantly from 28.5% to 32.5%. EPS for the quarter was $0.40 compared to $0.24, or a 67% increase YoY. It guided revenue for FY23 to be $5.37 billion to $5.43 billion vs $5.35B consensus, representing a solid growth of 22% at the midpoint. The company ended the quarter with only $990 million in debt and $1.68 billion in cash, with provide ample financial flexibility for investments or further share repurchases.

Investors Takeaway

Fortinet, Inc.'s Q4 earnings once again demonstrated why it is one of the best cybersecurity companies in the world. Despite investors' pessimistic view of the product segment, Fortinet still managed to grow product revenue by a whopping 42.5% and added over 6,200 new logos during the quarter. Its strong reputation also helps minimize the S&M spending needed, which resulted in an exponential increase in operating income and EPS.

Considering the huge TAM and its low penetration rate, I believe Fortinet, Inc. can continue to put up consistent growth over the long run, not to mention its opportunities in newer and emerging segments. The current valuation is also not really expensive by historical standards. Fortinet is trading at a fwd price-to-FCF ratio of 23.92x which I believe is very fair, considering its strong growth rates. This is slightly lower than its 5-year historical average of 24.17x. As Fortinet, Inc. continues to scale, the ratio should go down pretty quickly, given the strong operating leverage it has. Therefore, I rate Fortinet, Inc. as a buy.

Fortinet (FTNT -1.22%) stock is rocking and rolling again after its fourth-quarter 2022 earnings update. This top cybersecurity pure play not only put the icing on a great couple of years, it also added to shareholder optimism that it can achieve the lofty goals it set for itself at an investor event a few months ago. With shares quickly climbing back toward their all-time highs from nearly a year ago, is Fortinet still a buy?  

Where high-performance networking and cybersecurity meet

Fortinet has been handily beating the overall market for years, and longtime shareholders know the secret sauce is the company's custom hardware. As the company pointed out during its investor presentation in December 2022, its proprietary chip technology (the security processing unit, or SPU) is best-in-breed. It's a big reason Fortinet wins business, as it helps its customers embed security solutions directly into their network infrastructure.

This competitive strength was on financial display in Q4 2022. Management reported total revenue increased 33% year over year to $1.28 billion, including a 43% year-over-year increase in product sales (networking hardware featuring those Fortinet chips) to $540 million. It caps off an epic year of growth. Total 2022 revenue was up 32% to $4.42 billion (including $1.78 billion in product, a 42% increase). This builds on what was also a stellar 2021, when total revenue grew 29%.

Fortinet's profitability was even better in the Q4 report card. Its operating margin rallied in the final months of the year to 27.9%, under generally accepted accounting principles (GAAP), bringing the full-year total to 21.9% -- much of that due to the higher pace of hardware sales (more on that momentarily). Resulting free cash flow also rallied in Q4 to $497 million (a hefty margin of 39%), bringing the full-year free-cash-flow total to $1.45 billion.  

Highly profitable services on the way

On to guidance. Fortinet said to expect first-quarter 2023 revenue to be in the range of $1.18 billion to $1.22 billion, a 26% year-over-year increase at the midpoint of the outlook. And for the full-year 2023 period, revenue is expected to be in the range of $5.37 billion to $5.43 billion, a 22% year-over-year increase. Of the total sales estimate, management said to expect services revenue to be around $3.35 billion, up 27% compared to 2022. This is important news, and a significant development that confirms what savvy investors have been expecting from Fortinet.

You see, the journey doesn't end after Fortinet sells its physical products that get embedded into a customer's network. Once up and running, that customer then turns on recurring software and services that are sold as a package with the security hardware. The result is an ongoing stream of service revenue for Fortinet that can generate highly profitable returns (typically far higher profit than the product sale) for the company for years to come.

It also makes for a very sticky relationship. Many cybersecurity upstart companies (most of which address problems with the modern cloud) are software only. There are often low switching costs associated with those types of services. But a company like Fortinet, with products embedded into the very fabric of a customer's IT infrastructure? That's significantly harder to uproot. 

Additionally, Fortinet has done a great job over the years developing new cloud-based services as an add-on to (or integrated with) its hardware-based offerings. With a large installed base in existence, it gives the company the opportunity to go out and cross-sell more services as their customers need -- further enhancing Fortinet's chance to expand profitably. 

With a big and expanding backlog of business, Fortinet's recent report was fantastic news for this cybersecurity leader. Shares now trade for 32 times 2022 free cash flow, a premium price tag. However, if Fortinet meets its goals for double-digit revenue growth, maintains its high profit margin, and continues to repurchase lots of stock (it repurchased $1.99 billion in 2022) over the next few years, it's certainly not an unreasonable price. I remain a buyer here.

Fifth-generation security processing unit (FortiSP5) delivers unparalleled levels of power-efficient performance to open new frontiers for securing the branch, campus, 5G, edge compute, operational technologies, and more

Fortinet Custom ASIC FortiSP5

Fortinet FortiSP5

SUNNYVALE, Calif., Feb. 06, 2023 (GLOBE NEWSWIRE) --

Ken Xie, Founder, Chairman of the Board, and Chief Executive Officer at Fortinet
“With the introduction of FortiSP5, Fortinet once again sets new industry records for performance, cost, and energy efficiency. As the only cybersecurity vendor leveraging purpose-built ASICs, an over 20-year investment in innovation, Fortinet delivers the secure computing power that will support the next generation of secure infrastructure.”

News Summary
Fortinet^® (NASDAQ: FTNT), the global cybersecurity leader driving the convergence of networking and security, today announced FortiSP5, the latest breakthrough in ASIC technology from Fortinet, propelling major leaps forward in securing distributed network edges. Building on over 20 years of ASIC investment and innovation from Fortinet, FortiSP5 delivers significant secure computing power advantages over traditional CPU and network ASICs, lower cost and power consumption, the ability to enable new secure infrastructure across branch, campus, 5G, edge compute, operational technologies, and more.

Unparalleled Innovation in Custom Chip Performance 
With an application-specific design and embedded multi-core processors to accelerate the convergence of networking and security functions, FortiSP5 delivers:

• 17x faster firewall performance compared to leading standard CPUs.

• 3.5x faster next-generation firewall (NGFW) performance compared to leading standard CPUs to handle higher levels of traffic inspection to detect and block threats.

• 32x faster encryption to protect sensitive data and secure virtual private networks.

• 2.5 Gbps of SSL deep inspection to deliver the processing power needed to inspect encrypted traffic for malware without performance issues.

• Secure boot to allow only approved operating system software to boot up, protecting critical infrastructure against malicious tampering.

• Volumetric DDoS protection to thwart distributed denial-of-service (DDoS) attacks.

• VXLAN/GRE hardware-accelerated encapsulation to enable secure interconnectivity for distributed networks.

• Hardware-accelerated Quality of Service (QoS) to enhance user experience with dedicated QoS for sensitive applications such as videoconferencing.

Story continues

Significant Cost and Energy Savings
As a fifth-generation 7-nanometer chip, FortiSP5 packs more capabilities in a smaller form factor to deliver:

• 88% less power consumption compared to the leading industry-standard CPU

• Industry-leading performance per watt

• Industry-leading price-performance
  

Supporting More Applications to Enable Important Customer Use Cases 
With the ability to accelerate and concurrently run 2x more applications—for example, NGFW, zero-trust network access (ZTNA), SD-WAN, and SSL inspection—compared to the previous generation, FortiSP5 will support use cases such as:

• Branch/Campus: FortiSP5 ensures the transition to SD-Branch is efficient and cost-effective in a small form factor, enabling IT staff to simplify management and reduce OpEx while increasing network uptime. Additionally, as more organizations embrace the cloud and hybrid work model, FortiSP5 will continue to be a driver for Secure SD-WAN to empower customers to securely and seamlessly access applications anywhere while delivering consistent user experience with an optimized platform.

• Edge Compute: As edge computing improves efficiency and cost control through processing close to the edge, FortiSP5 supports high-speed networks and security threat protection for both commercial and operational technology (OT) environments, minimizing bottlenecks for traffic movement.

• Operational Technology: The convergence of IT and OT has opened the infrastructure to increased security risks that can disrupt operations. FortiSP5 enables scalable convergence, securing both OT and IT infrastructures with a single, high-performance platform.

• 5G: 5G adoption is on the rise in enterprise networks, fueling innovation at the edge as it provides higher bandwidth and lower latency. FortiSP5 enables a seamless transition to support 5G with an optimized and sustainable platform.

Proven System on a Chip Technology
FortiSP5 will power the next generation of entry and mid-range FortiGate firewalls being released later this year. Now on its fifth generation, we believe Fortinet’s proprietary system on a chip technology has a proven track record of powering the industry’s top-performing products and solutions. A few examples include:

• Fortinet has been named a Leader in the 2022 Gartner® Magic Quadrant™ for Network Firewalls,¹ marking the thirteenth time Fortinet has been recognized in this Magic Quadrant.

• A recent Forrester study² highlighted that customers deploying Fortinet’s Secure SD-WAN solution, which is backed by FortiGate and SOC technology, achieved a 300% return on investment over 3 years with a payback period of only 8 months.
  

Fortinet Supports Sustainability Goals
The energy efficiency and performance per watt of FortiSP5 and the products that leverage the chip will help organizations reduce their power and space requirements. Fortinet remains committed to sustainable product innovation to ensure each generation of its products consumes less energy and is built sustainably.

Today, Fortinet’s Sunnyvale headquarters is a net-zero emissions facility and plans for global operations to be completely carbon neutral by 2030. Fortinet was recently named to the 2022 Dow Jones Sustainability World and North America Indices as one of the top sustainable companies in the world, highlighting Fortinet’s commitment to achieving a sustainable society.

Supporting Quote:
“Enterprise applications and the users and devices that access them are more distributed than ever, which is causing organizations to rethink their edge network and security architectures. A key to enabling enterprise edge networking is having strong security without compromising on network performance and user experience. Fortinet has a 20-year history in ASIC technology that helps achieve these goals, and the company’s newest FortiSP5 continues that legacy. Fortinet’s portfolio of converged network and security solutions with custom chips helps enterprises accelerate their edge network and security transformation.”
- Brandon Butler, Research Manager, Enterprise Networks at IDC

Additional Resources

^¹ Gartner, Magic Quadrant for Network Firewalls, Rajpreet Kaur, Adam Hils, Tom Lintemuth, 19 December 2022.

² “The Total Economic Impact™ Of Fortinet Secure SD-WAN”, a commissioned study conducted by Forrester Consulting on behalf of Fortinet, December 2022.

Gartner does not endorse any vendor, product or service depicted in its research publications and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s Research & Advisory organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

GARTNER is a registered trademark and service mark of Gartner and Magic Quadrant is a registered trademark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and are used herein with permission. All rights reserved.

About Fortinet
Fortinet (NASDAQ: FTNT) is a driving force in the evolution of cybersecurity and the convergence of networking and security. Our mission is to secure people, devices, and data everywhere, and today we deliver cybersecurity everywhere you need it with the largest integrated portfolio of over 50 enterprise-grade products. Well over half a million customers trust Fortinet's solutions, which are among the most deployed, most patented, and most validated in the industry. The Fortinet Training Institute, one of the largest and broadest training programs in the industry, is dedicated to making cybersecurity training and new career opportunities available to everyone. FortiGuard Labs, Fortinet’s elite threat intelligence and research organization, develops and utilizes leading-edge machine learning and AI technologies to provide customers with timely and consistently top-rated protection and actionable threat intelligence. Learn more at https://www.fortinet.com, the Fortinet Blog, and FortiGuard Labs.

FTNT-O

Copyright © 2023 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and common law trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet’s trademarks include, but are not limited to, the following: Fortinet, the Fortinet logo, FortiGate, FortiOS, FortiGuard, FortiCare, FortiAnalyzer, FortiManager, FortiASIC, FortiClient, FortiCloud, FortiMail, FortiSandbox, FortiADC, FortiAI, FortiAIOps, FortiAntenna, FortiAP, FortiAPCam, FortiAuthenticator, FortiCache, FortiCall, FortiCam, FortiCamera, FortiCarrier, FortiCASB, FortiCentral, FortiConnect, FortiController, FortiConverter, FortiCWP, FortiDB, FortiDDoS, FortiDeceptor, FortiDeploy, FortiDevSec, FortiEdge, FortiEDR, FortiExplorer, FortiExtender, FortiFirewall, FortiFone, FortiGSLB, FortiHypervisor, FortiInsight, FortiIsolator, FortiLAN, FortiLink, FortiMoM, FortiMonitor, FortiNAC, FortiNDR, FortiPenTest, FortiPhish, FortiPlanner, FortiPolicy, FortiPortal, FortiPresence, FortiProxy, FortiRecon, FortiRecorder, FortiSASE, FortiSDNConnector, FortiSIEM, FortiSMS, FortiSOAR, FortiSwitch, FortiTester, FortiToken, FortiTrust, FortiVoice, FortiWAN, FortiWeb, FortiWiFi, FortiWLC, FortiWLM and FortiXDR. Other trademarks belong to their respective owners. Fortinet has not independently Verified statements or certifications herein attributed to third parties and Fortinet does not independently endorse such statements. Notwithstanding anything to the contrary herein, nothing herein constitutes a warranty, guarantee, contract, binding specification or other binding commitment by Fortinet or any indication of intent related to a binding commitment, and performance and other specification information herein may be unique to certain environments.

Photos accompanying this announcement are available at:

https://www.globenewswire.com/NewsRoom/AttachmentNg/b9673851-40d7-43bf-ac10-84e91e9ae8dc

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© Provided by The Manila Times Fortinet’s multifaceted approach accelerates its commitment to eliminate the cybersecurity skills gap. CONTRIBUTED PHOTO

FORTINET — a global leader in broad, integrated and automated cybersecurity solutions — announced new security operations center (SOC) augmentation services, designed to help strengthen an organization's cyberresiliency and support short-staffed teams, strained by the talent shortage. In addition, as part of Fortinet's leadership efforts to help close the cyberskills gap, the Fortinet Training Institute has added initiatives across its programs to further increase access to its industry-recognized training and certifications.

The prevailing talent shortage remained one of the top challenges facing SOC teams globally. Fortinet's 2022 Cybersecurity Skills Gap report found that 50 percent of global leaders cited security operations as one of the most challenging roles to fill, and 42 percent were still in need of security operations analysts. Additionally, the same Fortinet survey found that worldwide, 80 percent of organizations suffered one or more breaches due to a lack of cybersecurity skills and awareness.

A lack of resources and personnel, combined with the sheer volume of security alerts SOC teams receive per day, often resulted in missed detections and slower responses that increased exposure to cyberrisk. SOC teams required an immediate solution to mitigate these challenges through investment in automated and integrated SOC, and cybersecurity technologies and experienced professionals to better protect against threats.

New and enhanced SOC augmentation services provided immediate support for short-staffed security operations teams.

Committed to helping organizations overcome these obstacles, Fortinet's new and enhanced services helped SOC teams to reduce their organizations' cyberrisk while freeing up their time to focus on higher-priority projects.

Investment Thesis

Fortinet (NASDAQ:FTNT) has a less-than-straightforward story. Its business makes the bulk of its revenues from its Product segment. Something that the Street has generally been skeptical of.

But what Fortinet has excelled in, is in delivering high ROI to its customers, through its low cost-for-performance hardware. Consequently, this has allowed Fortinet to print free cash flow.

Indeed, this quarter we saw Fortinet's free cash flow jump 48% y/y. Reminding investors that there's much to like here, so let's get to it.

Fortinet's Near-Term Prospects

Fortinet continues to push forward with its Service segment. Even though the Service segment ever-so-slightly decelerated sequentially from 28% y/y CAGR to 27% y/y CAGR, these figures are quite compelling.

Particularly given that Microsoft's Azure (MSFT) and Amazon's AWS (AMZN) have both had their earnings results and the figures show that cloud enterprise spending is coming down.

However, the big theme for 2023, I suspect, will be around AI. Being a cybersecurity vendor for AI platforms could be a meaningful tailwind for cybersecurity companies.

That being said, the one aspect that has held back Fortinet in the eyes of investors has been the fact that the majority of its revenues come from its Product business. But this may be less bad than it sounds. Here's why.

Given the industry trend towards ''renting'' software services, investors have generally been skeptical of Fortinet's long-term prospects. Given that point of view, Fortinet used their earnings call to highlight that:

[...] a recent Forrester report highlighted that customers deploying Fortinet Secure SD-WAN solutions achieved a 300% return on investment over three years with a payback period of only eight months.

In sum, the story isn't over for Fortinet. Now, let's dig into its financials.

Revenue Growth Rates Are Fair

Fortinet's guidance for the year ahead isn't all that impressive. But what it does show is that there's ''at least'' 22% top line, if we assume that management is lowballing estimates, to leave room to positively impress investors over the coming quarters.

What's more, given that its billings for Q1 2023 are at 26% y/y and higher than the revenue growth rate guidance for Q1 reinforces the overall image that Fortinet's pipeline of future revenues to be ''recognized'' is healthy.

What's more, Fortinet once again reiterated that it believes it can continue to grow its operations to $8 billion in revenues by 2025. This would imply that investors getting involved today would be getting the ''reassurance'' that Fortinet can put out a 22% CAGR over the next two years.

What's more, given that Fortinet has been unwavering in its outlook for some time now, combined with its near-term guidance being compelling, certainly gives credence to its multi-year outlook.

Next, we'll turn our focus to what's arguably the best reason to own Fortinet.

Fortinet's Bull Case Laid Out

Remember 2020? A period when it was ''uncool'' to be profitable? Throughout that period, Fortinet had one of the weakest performances amongst its cybersecurity peers.

Nevertheless, Fortinet continued to plow forward and lay down the work then, to literally ooze free cash flow now.

Accordingly, Fortinet's guidance for 2025 points to somewhere in the ballpark of $3 billion of free cash flow. For a cybersecurity business that's priced at approximately 15x 2-years forward free cash flows, this is really an attractive valuation.

Given the value of its shares, Fortinet has steadily and consistently repurchased its own shares. But here comes the most shocking aspect! Check out the red arrow below.

This is a rare breed of tech companies where repurchasing shares after stock-based compensation actually brings down the total number of shares outstanding.

That being said, it should be noted that looking ahead to 2023, the total number of shares is estimated to trickle higher by approximately 1%, reversing some of the progress of 2022.

The Bottom Line

The message coming out of Fortinet this quarter is about setting the record straight.

What customers actually want in this environment is savings. The time when enterprises were willing to spend beyond the budget to be safe online may be taking a breather after 2020-2021 saw a very strong pull forward in demand.

In sum, paying around 15x Fortinet's 2025 free cash flows is a compelling investment.

• The Cybercrime Atlas initiative brings together global leaders to fight cyberthreats and map the cybercrime landscape, covering criminal operations, structures and networks

SUNNYVALE, Calif. – Derek Manky, Chief Security Strategist and VP of Global Threat Intelligence at FortiGuard Labs: “Disrupting global cybercriminal organizations requires a global effort with strong, trusted relationships and collaboration across public and private organizations and industries. It is part of Fortinet’s mission to secure people, devices, and data everywhere, and Fortinet is proud to be one of the founding members of the World Economic Forum Centre for Cybersecurity and an active contributor as part of its Partnership against Cybercrime (PAC). The Cybercrime Atlas initiative is about driving real impact and is a coordinated effort to create a chain of disruption in the world of cybercrime. We are excited to continue our work with private and public sector leaders to help make our digital world a safer place.”

Fortinet® (NASDAQ: FTNT), the global cybersecurity leader driving the convergence of networking and security, today announced the launch of the Cybercrime Atlas, a joint initiative launched this month in Davos at the organization’s Annual Meeting by the World Economic Forum (WEF) with the support of Banco Santander, Fortinet, Microsoft, and PayPal. The Cybercrime Atlas – currently hosted by the Forum – will aid industry, law enforcement, and government agencies by providing a first-of-its-kind visibility to disrupt cybercriminals across their ecosystem and infrastructure to track and help take down cybercriminals and their infrastructure around the world. 

Global Leaders Collaborating to Build a Chain of Disruption

Cybercrime impacts everyone from individuals to global corporations and critical infrastructures and governments. It causes immense, though not always visible, damage to economies and societies. The Cybercrime Atlas was first conceptualized by the Forum’s PAC community, which includes over 40 private and public sector members.

The Cybercrime Atlas is a collaborative effort to build an action-orientated, global knowledge-base​ of the cybercriminal landscape to enable mitigation and disruption of cybercrime. Building on the expertise of the Forum’s PAC, the Cybercrime Atlas initiative will provide a platform for leading cybercrime investigators, national and international law enforcement agencies, and global businesses to share knowledge, generate policy recommendations and identify opportunities for coordinated action to fight cyberthreats.

The Cybercrime Atlas aims to build a comprehensive picture of the cybercrime landscape that covers criminal operations, shared infrastructure, and networks. The links between the information gathered about threat actors will help the security industry more effectively disrupt the cybercriminal ecosystem, more efficiently allocate resources in the fight against them, and make their unlawful efforts more cost prohibitive.

Since 2H 2021, the Cybercrime Atlas has benefited from a year of analysis into 13 criminal groups by specialized analysts and cybercrime investigators, using only publicly available information. The accumulated knowledge from the Cybercrime Atlas efforts will ultimately help to identify and disrupt the cybercrime ecosystem. The analysis will shed light on cybercriminal artifacts to aid industry, law enforcement, and government agencies to create a chain of disruption. The approach and initial findings of the group have been welcomed by law enforcement agencies. The uncovering of these non-traditional artificats will help aid in the capture and successfull prosecution of cybercrime gang members.

Fortinet’s Continued Commitment to Disrupting Global Cybercrime

Fortinet’s FortiGuard Labs’ leadership in the threat intelligence community over the last decade has helped take the fight to adversaries and Boost protections for customers, partners, and governments around the world. By sharing threat intelligence and working with other threat intelligence organizations, it helps Boost protections for customers and enhances the effectiveness of the entire cybersecurity industry.

FortiGuard Labs is committed to partnership and cooperation with global law enforcement, government organizations, and industry organizations. In addition to the work with WEF Centre for Cybersecurity and being a contributor to PAC, Fortinet also invests meaningful resources in further global partnerships, including the MITRE Engenuity Center for Threat Informed Defense (CTID). Fortinet is also a long-standing member of the NATO Industry Cyber Partnership (NICP), are active contributors and members of INTERPOL Gateway, is a founding member of the Cyber Threat Alliance (CTA), and more.

Supporting Quotes

“Given the global nature of cyberthreats, increasingly public-private collaboration is the best way to combat cybercrime. Organizations must look beyond their perimeter and combine efforts and resources with businesses, law enforcement and government.”

-- Dirk Marzluf, Group Chief Operating and Technology Officer, Banco Santander

“This initiative underlines the need for an enhanced multi-sector approach to combat the increasing cybercrime threat. A global solution must include private sector insights to enable law enforcement to prevent, detect, investigate and disrupt cybercrime.”

-- Jürgen Stock, Secretary-General, International Criminal Police Organization (INTERPOL)

“Cybercriminals work in the shadows and exploit vulnerabilities to inflict devastating attacks. The Cybercrime Atlas provides an important forum that brings the public and private sectors together to share actionable information and leverage cross-sector data, capabilities and expertise, crucial to disrupting cybercrime quickly, and at scale.”

-- Brad Smith, Vice-Chair and President, Microsoft

“The Cybercrime Atlas is a collaborative research initiative that gathers and collates information about the cybercriminal ecosystem and major threat actors operating today. The insights generated will help promote opportunities for greater cooperation between the private sector and law enforcement to address cybercrime.”

-- Jeremy Jurgens, Managing Director, World Economic Forum

-Ends-

About Fortinet

Fortinet (NASDAQ: FTNT) makes possible a digital world that we can always trust through its mission to protect people, devices, and data everywhere. This is why the world’s largest enterprises, service providers, and government organizations choose Fortinet to securely accelerate their digital journey. The Fortinet Security Fabric platform delivers broad, integrated, and automated protections across the entire digital attack surface, securing critical devices, data, applications, and connections from the data center to the cloud to the home office. Ranking #1 in the most security appliances shipped worldwide, more than 615,000 customers trust Fortinet to protect their businesses. And the Fortinet NSE Training Institute, an initiative of Fortinet’s Training Advancement Agenda (TAA), provides one of the largest and broadest training programs in the industry to make cyber training and new career opportunities available to everyone. Learn more at https://www.fortinet.com, the Fortinet Blog, or FortiGuard Labs.

About FortiGuard Labs

FortiGuard Labs is the threat intelligence and research organization at Fortinet. Its mission is to provide Fortinet customers with the industry’s best threat intelligence designed to protect them from malicious activity and sophisticated cyberattacks. It is composed of some of the industry’s most knowledgeable threat hunters, researchers, analysts, engineers, and data scientists in the industry, working in dedicated threat research labs all around the world. FortiGuard Labs continuously monitors the worldwide attack surface using millions of network sensors and hundreds of intelligence-sharing partners. It analyzes and processes this information using AI and other innovative technology to mine that data for new threats. These efforts result in timely, actionable threat intelligence in the form of Fortinet security product updates, proactive threat research to help our customers better understand the threats and actors they face, and threat intelligence to help our customers better understand and defend their threat landscape. Learn more at https://www.fortinet.com, the Fortinet Blog, and FortiGuard Labs.

FTNT-O

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