Fortinet Surges as Cybersecurity Demand Drives Record Earnings

Key Points

• Fortinet is a global cybersecurity leader growing market share in the unified secured access security edge (SASE) segment.
• Fortinet’s Q2 2024 results beat top and bottom line estimates while operating margins rose 820 bps to 35%.
• Fortinet raised its full-year 2024 top and bottom line estimates as unified SASE continues to become a larger portion of total revenues.

Global cybersecurity leader Fortinet Inc. NASDAQ: FTNT stock has been surging following its robust Q2 2024 earnings top and bottom line beats. The company went ahead and raised its full-year 2024 guidance as a sweet cherry on top. The strong demand for its next-generation firewalls and the convergence of networking and security needs underscored the masterful performance. Record-breaking ransomware extortion and enterprise security breach headlines have put companies on guard to limit their attack surfaces. While this can spur demand, every major breach can also cause investors to lose faith in the efficacy of the security measures, as evidenced by the sell-off in cybersecurity stocks.

Fortinet operates in the computer and technology sector, competing with cybersecurity firms like Crowdstrike Holdings Inc. NASDAQ: CRWD, Palo Alto Networks Inc. NASDAQ: PANW and Zscaler Inc. NASDAQ: ZS.

What Makes Fortinet’s Next-Generation Firewalls Superior?

Firewalls are nothing new in the world of cybersecurity. It’s one of the oldest initial lines of defense for anyone working online. Fortinet’s next-generation firewalls utilize its FortiGate technology. They utilize deep packet inspection (DPI) that takes a granular approach and inspects the actual content in network traffic. This enables them to detect and deflect sophisticated threats which can bypass conventional firewalls, which only inspect ports and protocols.

Fortinet Accelerates Growth of its Unified Secure Access Service Edge

A unified secured access security edge (SASE) provides a single vendor solution with all the essential components of a comprehensive security system. It’s a convergence of networking and security solutions. Fortinet's SASE components include firewalls and Zero Trust Network Access (ZTNA), which continuously verify and authenticate every user. Digital Experience Monitoring (DEM) monitors real-time application and network performance to address potential issues before they occur.

Fortinet is the only company to have organically built its SASE into a single-operation system. Its Unified SASE accounts for 23% of the total building. They expect it to become the leader in the SASE market. The company continues to build out its SASE delivery infrastructure, which includes leveraging its FortiGate technologies.

Fortinet Technology has 5X to 10X Better Performance Than Competitors

In its second-quarter earnings conference call, Fortinet CEO Ken Xie firmly stated his belief that their technology is superior to competitors, "Secure networking customers are increasingly recognizing our FortiOS and FortiASIC technology offering 5 to 10x better performance than our competitors while improving security effectiveness and providing a low total cost of ownership.” Its roster of A-list clients, including Microsoft Co. NASDAQ: MSFT, Verizon Communications Co. NYSE: VZ and Salesforce Inc. NYSE: CRM, in addition to the other 500,000 worldwide customers, is a testament to the bold claim.

FTNT Triggers a Descending Triangle Breakout

The daily candlestick chart for FTNT illustrates a breakout through the bearish descending triangle pattern. This pattern was comprised of a descending upper trendline representing lower highs and a flat-bottom lower trendline support at $56.96. FTNT was in the process of a breakdown heading into its Q2 2024 earnings report. The strong top and bottom line beat and raised guidance caused shares to gap higher to $65.00, up from the gap fill at $56.86. FTNT proceeded to jump 25% the following day. The daily relative strength index (RSI) surged up through the overbought 70-band. Pullback support levels are at the $67.02, $65.00 gap fill, $61.36 and $56.86 gap fill.

Fortinet Smacks Q2 2024 Results Out of the Park 

Fortinet reported Q2 2024 EPS of 57 cents versus 41 cents, beating consensus estimates by 16 cents. Non-GAAP operating income was $503.6 million for a 35.1% operating margin. GAAP net income was $379.8 million, up from $266.3 million in the year-ago period. Q2 2024 total revenues surged 11% YoY to $1.43 billion, beating $1.40 consensus analyst estimates. The company generated a free cash flow of $318.9 million, down from $438.3 million in the year-ago period.

Service Revenue Growth Stole the Show

Product revenues fell 4.4% YoY to $451.9 million. Service revenue surged 19.8% to $982.4 million, up from $820.2 million in the year-ago period. Total billings were flat YoY at $1.54 billion. Deferred revenue rose 15% YoY to $5.9 billion, compared to $5.13 billion in the year-ago period.

Fortinet Raised its Full Year 2024 Guidance

For Q3 2024, Fortinet expects EPS of 56 cents to 58 cents versus 43 cents consensus estimates. Revenues for the third quarter are expected to be between $1.445 billion to $1.505 billion versus $1.47 billion consensus estimates. Non-GAAP gross margin is expected between 79% to 80%.

Fortinet expects full-year 2024 EPS of $2.13 to $2.19, crushing $1.76 consensus estimates. Revenues are expected between $5.8 billion to $5.9 billion. Service revenue is expected between $3.975 billion to $4.025 billion. Billings are expected between $6.4 billion to $6.6 billion. Non-GAAP gross margin is expected between 79% to 80%. Non-GAAP operating margin is expected between 30% to 31.5%.

Fortinet analyst ratings and price targets are at MarketBeat. There are 33 analyst ratings on FTNT stock, comprised of 1 Strong Buy, 9 Buys, and 23 Holds, with a 2.33% upside to the average consensus price target of $71.31.