Fortinet’s stock slid in Wednesday’s extended session after earnings, dragging other cybersecurity stocks down with it — even though the company’s headline results beat expectations. The sell-off, reported by MarketWatch, shows how high the bar has become for cybersecurity firms riding AI-fuelled investor expectations.
Fortinet stock dive after earnings was driven by growth slowing significantly in one of Fortinet’s business segments, with shares set to shed about a quarter of their value based on after-hours activity on Wednesday, according to MarketWatch.
Fortinet (Credits: MarketWatch)
Fortinet Earnings: The Numbers Behind the Drop
For the third quarter, which ended on September 30, Fortinet reported adjusted earnings of 91 cents per share, up from 74 cents a year earlier, on revenue of $2.08 billion, up 20% year over year. Analysts had been expecting 86 cents per share on revenue of $2.06 billion, so on those headline measures, Fortinet beat forecasts.
The problem, analysts said, was in the details. Product revenue came in at $765 million, up 37% from a year before, whereas the growth rate was 52% in the second quarter. That sharp slowdown in product growth — product revenue tracks demand for the company’s FortiGate firewalls — disappointed investors who had priced in faster expansion.
Another concern was the service business. Service revenue amounted to $1.31 billion in the third quarter, versus the $1.33 billion that analysts tracked by FactSet were expecting. Wells Fargo analyst Richard Polland also noted that while Fortinet beat expectations on metrics like billings and revenue, it did so by a smaller magnitude than investors have come to know.
In short, Fortinet failed to live up to the high AI-fuelled expectations investors had for the cybersecurity sector — not because the quarter was weak in absolute terms, but because it was less strong than the market had assumed.
Cybersecurity Stocks Fall Across the Board
Fortinet’s earnings report dealt a blow to investors across the sector. Shares of Palo Alto Networks, Zscaler and SentinelOne were each off more than 6% in Wednesday’s extended session, while CrowdStrike’s stock was off more than 5%, and so was Okta’s.
That broad sell-off underlines how closely cybersecurity stocks now move together. When the sector leader disappoints on a growth metric, investors quickly reassess the whole group, even companies that have not yet reported.
It is also a reminder that, for high-growth technology stocks, beating earnings estimates is not always enough. If the pace of growth slows — even from a very high level — the market reaction can be swift and severe, particularly when valuations already assume rapid expansion will continue.
Fortinet’s management, for its part, pointed to broad demand and raised billings guidance for a third time this year, according to its earnings release. But on Wednesday evening, that message was overshadowed by the slowdown in product growth and the miss in service revenue — the two details investors focused on first.
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Source: MarketWatch — read the full story there.
