Fortinet (FTNT) shares skyrocketed on Wednesday following the cybersecurity company’s announcement of second-quarter earnings and revenue that surpassed Wall Street’s expectations. A notable highlight was the increase in operating margin, which boosted Fortinet’s stock performance. The stock jumped 25.3%, closing at 69.93.
Jefferies analyst Joseph Gallo commented in a report, “Q2 billings showing flat year-over-year growth was better than anticipated, and the 35% operating margin far exceeded expectations. Fortinet upheld its 2024 billings forecast but postponed firewall product updates to 2025. The stock should find a higher support level due to the sustainable improvement in margins.”
For the June quarter, Fortinet’s adjusted earnings increased by 50% to 57 cents per share, while revenue grew 11% to $1.43 billion. Analysts had predicted earnings of 41 cents per share on revenue of $1.4 billion.
Additionally, the Sunnyvale, California-based company reported that billings—a key sales growth indicator—remained flat at $1.54 billion, matching the previous year’s figure and slightly exceeding analyst projections of $1.52 billion.
Fortinet Stock: Q3 Outlook
For the third quarter ending on September 30, Fortinet projected revenue between $1.445 billion and $1.505 billion, compared to analyst expectations of $1.47 billion. The company anticipates billings between $1.53 billion and $1.6 billion, while analysts estimated $1.59 billion.
Prior to this earnings announcement, Fortinet’s stock had increased by 4% in 2024, following a lackluster performance the previous year.
UBS analyst Roger Boyd suggested a potential recovery for Fortinet, stating, “If Fortinet successfully advances its product development in SASE, integrates its acquisitions of Lacework and Next DLP, and boosts its sales and marketing efforts, it could set the stage for a promising 2025, especially with an analyst day planned for November. However, there are many variables at play.”
FTNT Stock: Slowing Firewall Growth
Fortinet operates in the firewall network security market, competing with Palo Alto Networks (PANW), Check Point Software Technologies (CHKP), and others. Firewalls are essential for preventing online intrusions and monitoring web applications.
The firewall market has seen slower growth as businesses reduce purchases of network equipment for on-premises data centers, shifting instead to cloud-based platforms for their applications and workloads.
Fortinet and other cybersecurity firms are increasingly targeting the emerging Secure Access Service Edge (SASE) market, which provides a quick and cost-effective method for securing branch offices and remote workers.
According to IBD Stock Checkup, FTNT stock holds a Relative Strength Rating of 33 out of a possible 99. The Computer Software-Security sector ranks 177th out of 197 industry groups tracked by IBD, down from 75th six weeks prior.
