As at 17 October 2025

Executive Summary

In this report, we revisit 2Q25 results for FTNT, released in August 2025 and where this positions our view in context.
Financial results at a glance:
• Fortinet reported 2Q25 revenue growth of 14% year over year to $1.63 billion, supported by robust service
segment performance and recurring demand for cloud and security solutions, even as product sales remained
pressured from device refresh cycles and a challenging macro environment.
• Billings grew 15% to $1.78 billion, a notable acceleration from flat year-over-year billings in 2Q24. The growth was led by strong momentum in Unified SASE ARR (+22%) and Security Operations ARR (+35%), underlining the company’s strategic pivot to integrated cloud and AI-driven security platforms and managed services.
• Profitability remained strong with non-GAAP operating margin at 33%, despite double-digit increases in R&D
(+27%) and sales & marketing (+18%) investment. This margin strength reflects ongoing operating leverage,
improved software mix, and disciplined cost management compared to the prior year’s margin of 35.1%.
• Service revenue increased nearly 14% year over year, continuing to be a key driver of Fortinet’s overall growth.
• Fortinet’s ongoing shift to subscriptions has transformed its business model, with services and support now making up roughly 70% of total revenue in 2025, up from approximately 48%. This move toward recurring contracts and SASE solutions has strengthened earnings stability and visibility.
3Q25 results are expected to be released on 05 November 2025.

Analyst thesis

Our recommendation is based on:

• Fortinet’s growth thesis remains supported by technology leadership (ASIC architecture, AI investments) and
strong long-term secular tailwinds in cybersecurity (SASE and SecOps).
• The faster-than-expected progress in the 2026 firewall device refresh cycle (already 40%–50% complete) could limit near-term future product revenue growth, as much of the upgrade demand may have been pulled forward, reducing sales potential in upcoming quarters. Services revenue guidance was trimmed due to slower billing conversion and acquisition-related churn, while emerging legal risks, including class action lawsuits, and inconsistent management communication have heightened investor concerns about transparency and near-term growth.
• Despite these issues, Fortinet's long-term growth prospects remain strong, supported by innovation and ongoing demand for its network security solutions.
• The FTNT is trading at lower multiples than its historical average and is cheaper than its comparable peer, Palo Alto, despite historically demonstrating stronger growth and profitability