Cyber security: Fortinet aims to boost revenue from subscriptions

Cyber security. A sector which, partly due to the terrible wars that are ravaging the world and killing thousands of defenceless civilians, is becoming increasingly relevant. Not only – unfortunately – in the military sphere, but above all in the business world. In this regard, it is hardly surprising that the sector is forecast to reach a value of between 215 and 272.62 billion dollars by 2025, depending on the report and the segment under consideration. Some analysts, however, estimate even higher figures. Overall, the market is set to experience significant growth in the coming years, with an annual growth rate of between 11.3 per cent and 12.9 per cent. Against this backdrop, publicly listed cybersecurity companies have long been on investors’ radar.

Among others, there is also that of Fortinet. The Californian group, listed on the Nasdaq, operates across several areas. First and foremost is secure networking. That is to say: the combination of networking functions with cyber defences to protect IT infrastructure. Another key area is Secure Access Service Edge (SASE). Here, cybersecurity solutions are delivered via cloud computing. This system is designed to protect people and devices working from any location, even outside the corporate network. In other words, they operate directly in the cloud, without the need to install physical hardware in the office. Finally, we must not forget Security Operations. These encompass the services and products used, amongst other things, for monitoring, threat detection and incident response. Until recently, the group published its revenue figures, breaking them down precisely according to the activities described. However, this practice has now been discontinued. The group now reports total turnover, turnover by business segment (product and service revenue) and, in particular, the so-called Annual Recurring Revenue (ARR). This applies especially to SASE and Security Operations. The reason? A desire, similar to that of other tech and cybersecurity firms, to highlight the performance of recurring revenue (ARR) and cloud services. But that’s not all. The decision also reflects a genuine shift in the business model. Fortinet is focusing more on subscriptions (ARR) and less on one-off hardware sales. The shift, therefore, is both strategic and marketing-driven.

Yes, marketing. But what about the trend in the profit and loss account? According to the Bloomberg terminal, adjusted revenue has risen over the last decade. Revenue stood at $1 billion in 2015. It then surpassed $2 billion in 2019, reaching $5.3 billion in 2023. Finally, last financial year, turnover stood at $5.9 billion. Adjusted net profit has also been on the rise. A decade ago, profits stood at 19.9 million. In 2023, adjusted profit reached 1.14 billion and in 2024 it stood at 1.7 billion. Finally, profit margins are also on the rise. The adjusted EBITDA margin rose from 6.3 per cent in 2025 to 33.3 per cent last financial year. In short: the track record is on the up. Was this increase confirmed in the last quarter? The answer is positive, but also nuanced. The group reported rising revenues and profits. Specifically, turnover stood at $1.54 billion, up 13.8 per cent compared with the same period in 2024. Adjusted earnings per share (EPS), for its part, stood at 58 cents, up from 39 cents a year earlier.

At first glance, therefore, the trend appears positive. Despite these figures, however, the share price on the Nasdaq plummeted by 8.4 per cent in the wake of the quarterly results. Hence the need to take a closer look at the financial figures. Initially, analysts were critical of the turnover. This came in below market expectations. True! Profitability beat the consensus, which had forecast an adjusted EPS of $0.53. Nevertheless, the trend in turnover weighed more heavily. This was partly because the two key drivers – subscriptions and recurring revenue – both slowed down. SASE’s ARR rose by 26 per cent, whereas in the previous quarter the increase had been 28 per cent. The same pattern was seen in Security Operations: here, growth accelerated by 30 per cent, compared with a 32 per cent rise in the fourth quarter of 2024. And that’s not all. Operators – unsettled by the uncertainty surrounding Trump’s global tariff dispute – were not pleased by the confirmation of the 2025 guidance. In particular, the guidance regarding revenue, which is forecast to be between 6.65 and 6.85 billion dollars. Expectations had been for a range whose median value would be slightly higher.

In light of such market behaviour, one might argue that investors are never satisfied. Fortinet has nevertheless managed to deliver solid results. This is, generally speaking, a reasonable point. And yet, investors must always take the share price on the stock market into account. In particular, the multiples need to be closely monitored. According to Seeking Alpha, the forward non-GAAP price-to-earnings ratio (i.e. for 2025) stands at 40.8 times. This figure is higher than that of, for example, the sector index (the Nasdaq Cybersecurity Index), which stands at 27.2 times for the current year. Of course, every company is a case in itself. For instance, Palantir Technologies has a P/E ratio of over 60. That said, it is clear that Fortinet’s price-to-earnings ratio is not at a discount. Moreover, the picture does not seem to change when looking at the forward non-GAAP PEG ratio. In other words: this indicator, which compares the share price with the normalised (non-GAAP) earnings expected over the next 3–5 years, shows how much one is paying today for each point of future profit growth. So: the multiple, again according to Seeking Alpha, stands at 3.02 times, whilst the median for the comparable sector is 1.76. In other words: Fortinet’s price cannot be described as cheap. Hence the market’s negative reaction to even the slightest wobble in the financial results. However, according to Seeking Alpha, the stock’s momentum is positive. In finance, momentum refers to an asset’s tendency to maintain a certain price direction over a specific period of time. Thus, the online financial platform states that: ‘Fortinet’s momentum is strong, with a one-year price performance of 67 per cent, significantly higher than the sector’s -3 per cent’. That said, one point must always be clear. No trading advice is being given here! The DIY investor, on the one hand, must exercise great caution; and on the other – bearing in mind that when investing in shares, the first question to ask is how much one is prepared to lose – must always take their own risk appetite into account. So far, these are some considerations regarding the income statement and multiples. But what are the key areas of focus from an industrial perspective? One priority is the extension of Artificial Intelligence (AI) to cybersecurity solutions. Thus, AI is, for example, part of the Fortinet Security Fabric. That is to say: the integrated platform that connects products and services within a single, coordinated system. What’s more, over 70 per cent of service revenue already depends on features enabled by Artificial Intelligence (AI), which improve threat detection, automate responses and reduce false positives. That said, it should be emphasised that competition in AI applied to cybersecurity is fierce. In particular, from AI-native companies or hyperscalers such as Microsoft and Google. This is a challenge to which Fortinet – according to some experts – is responding by pushing for greater technological sophistication (with over 500 AI-related patents) and the in-house development of many solutions. This sets it apart from many competitors, who often integrate external models.