IT security: Fortinet wants to push subscription revenues

Computer security. A sector which, not least because of the terrible wars that stain the world with blood and kill thousands of defenceless civilians, is becoming increasingly topical. Not only - unfortunately - in the military sphere but, above all, on the business front. In this sense, it is not surprising that the sector is expected to be worth between USD 215 and 272.62 billion in 2025, depending on the ratio and segment considered. Some analysts, however, estimate even higher figures. Overall, the market is set to experience significant growth in the coming years, with the annual growth rate between 11.3% and 12.9%. In such a context, cybersecurity companies whose securities are traded on the stock exchange are - not as of today - in the thoughts of investors.

Among others is that of Fortinet. The Nasdaq-listed Californian group is active on several fronts. First and foremost, there is secure networking. That is: the combination of network functions with IT barriers to protect the It infrastructure. Another important front is the secure access service edge (Sase). Here, cyber security solutions originate in cloud computing. It is a system designed to protect people and devices working from anywhere, even outside the corporate network. In other words: they work directly in the computer cloud, without the need to install physical (hardware) devices in the office. Finally, Security Operations must not be forgotten. These are the services and products that serve, among other things, monitoring, threat detection and incident response. Well: until recently, the group used to publish revenue trends, dividing them precisely according to the activities described. The practice, however, has been abandoned. Now the group reports total turnover, turnover by type of activity (product and service revenues) and, in particular, the so-called Annual Recurring Revenue (ARR). Above all, for Sase and Security Operations. The reason? The desire, similar to other tech/cybersecurity companies, to highlight the trend of recurring revenue (Arr) and cloud services. Not only that. The decision also reflects a real change in the business model. Fortinet relies more on subscriptions (Arr) and less on spot sales of hardware. The change, therefore, is both strategic and marketing.

Yes, marketing. But what is the trend in the income statement? According to the Bloomberg terminal, adjusted revenues have risen over the past decade. The first accounting line was worth $1 billion in 2015. Then, it surpassed 2 billion in 2019 to reach 5.3 billion in 2023. Last year's turnover was $5.9 billion. The adjusted net profitability itself is expanding. A decade ago, profits were worth 19.9 million. In 2023, adjusted profit rose to 1.14 billion and in 2024 to 1.7 billion. Margins were also on the rise. The adjusted Ebitda margin rose from 6.3% in 2025 to 33.3% last year. In short: the track record is on the rise. An increase confirmed in the last quarter? The answer is positive but also articulated. The group published increasing revenues and profits. Specifically, turnover was USD 1.54 billion, up 13.8% compared to the same period in 2024. Adjusted earnings per share (EPS), for its part, came in at 58 cents, up from 39 cents a year earlier.

On a first reading, therefore, the momentum appears positive. Despite such data, however, the stock on the Nasdaq fell 8.4% in the wake of the quarterly accounts. Hence, the need for a better grasp of the accounting elements. First of all, analysts turned their noses up at turnover. The latter was below market expectations. True! Profitability beat the consensus which expected an adjusted EPS of USD 0.53. And yet, the dynamics of turnover weighed more heavily. Not least because the two key drivers of subscriptions and recurring revenues both decelerated. Sase's Arr rose by 26%, whereas in the previous quarter the increase was 28%. The same is true for Security Operations: here the rate increased by 30% compared to the 32% increase in the fourth quarter of 2024. Not only that. Operators - intimidated by the uncertainty linked to the clash on global tariffs wanted by Trump - did not appreciate the confirmation of the guidance for 2025. In particular, the one referring to revenues, which are expected to be between $6.65 billion and $6.85 billion. Expectations were for a range that - in the median value - would be slightly higher.

In the face of such market behaviour, one may object: investors are uncontactable. Fortinet nevertheless managed to bring home solid results. The consideration, in general, is reasonable. And, however, the saver always has to reckon with the share price on the stock exchange. In particular, multiples must be closely observed. According to Seeking Alpha, the ratio of price to non-GAAP forward earnings (i.e. on 2025) is 40.8 times. This is higher than, for example, the industry index (Nasdaq Cybersecurity index), which is 27.2 times for the current year. Of course: each company is its own story. Thus: Palantir technologies, for example, has a P/e that travels over 60. Having said that, however, it is clear that Fortinet's price/earnings ratio is not at a discount. The narrative, moreover, does not seem to change when looking at the non-GAAP forward PEG. In other words: the indicator that compares the share price with expected normalised (non-GAAP) earnings over the next 3-5 years and tells how much you pay today for each point of future earnings growth. So: the multiple, again according to Seeking Alpha, stands at the level of 3.02 times while the median of the comparison sector is 1.76. That is: Fortinet's price cannot be said to be cheap. Hence the market's negative reaction to any slightest wavering on the accounts. However, according to Seeking Alpha, the stock's momentum is positive. The latter, in finance, is the tendency of an asset to maintain a certain direction in price for a certain period of time. Thus the online financial platform's indication is that: "Fortinet's momentum is strong, with a one-year price performance of 67%, well above the industry's -3%." That said, one thing must always be clear. No operational guidance is given here! The do-it-yourself saver, on the one hand, has an obligation to maintain a great deal of caution; and on the other - remembering that in equity investment the first question to ask is how much one is prepared to lose - must always reckon with one's own risk appetite. So far, some considerations regarding the income statement and multiples. What, however, are the focuses from an industrial point of view? One priority is the extension of artificial intelligence (AI) to cybersecurity solutions. Thus Ia is, for example, part of the Fortinet Security Fabric. That is: the integrated platform that links products and services into one coordinated system. More. More than 70 per cent of service revenues already depend on Artificial Intelligence (Ai) enabled capabilities, which improve threat detection, automation of responses and reduction of false positives. Beyond this, however, it must be emphasised that competition in Ai applied to cybersecurity is fierce. In particular, from native Ai companies or hyperscalers such as Microsoft and Google. A threat to which Fortinet - this is the indication of some experts - responds by pushing for greater technological sophistication (over 500 Ai-related patents) and in-house development of many solutions. All this in contrast to many competitors, who often integrate external models.