Fortinet's Q3 Earnings, Lowered Forecast Prompts Stock Price Plunge

Weaker-than-expected Q3 revenue growth and a lowered earnings outlook sent Fortinet's stock price plummeting.

Fortinet reported its Q3 earnings on Nov. 2. Its stock price then fell sharply for a second consecutive quarter.

Fortinet reported $133 billion in Q3 revenue, up 16.1% from the year-ago quarter. However, revenue fell below estimates of $135 billion.

Billings, a sales growth metric, missed in Q3. Fortinet reported billings of $1.49 billion, up 6%, but missing estimates for 12% growth.

Fortinet's Ken Xie

“While the secure networking market is experiencing slower growth as product demand returns to normal levels following two years of elevated growth, we are leveraging our scale, go-to-market (GTM) capabilities and engineering expertise to focus our attention on the faster-growing secure access service edge (SASE) and security operations markets, in addition to continuing our focus on secure networking,” said Ken Xie, Fortinet's founder, chairman and CEO. “We are well-positioned to capitalize on these emerging growth opportunities by leveraging our integrated FortiOS operating system, industry leadership in firewall and SD-WAN, and exceptional solutions in each of the SASE and security operations markets.”

Fortinet Previously Expected Strong Growth in Q4 and Beyond

Matthew Ball, chief analyst at Canalys, which shares a parent company with Channel Futures (Informa), said Fortinet had previously set the expectations for strong double-digit growth over the next two quarters, which has now been lowered.

Fortinet's Matthew Ball

"It has provided guidance of +8% to 12% for Q4, but it has not given its outlook for 2024," he said. "Its core secure networking business is under pressure after 21 consecutive quarters of double-digit growth. It is pivoting to faster-growing segments including SASE and SecOps, which means upselling its FortiGate installed base. Its challenge is to enable its channel to make this transition as well."

Fortinet also initiated layoffs, including channel and business development groups, which could hamper this transition, according to Canalys.

Along with its Q3 earnings, Fortinet announced that it is sharpening its business focus to prioritize "high-growth, differentiated" markets. The company’s R&D and GTM strategy will be organized around three markets. Those are secure networking, universal SASE and security operations.

Fortinet said this evolution underscores and reaffirms the company’s commitment to providing value to its customers and fostering a culture of innovation.