Fortinet's (FTNT), stock plunged on Friday after its third-quarter earnings. FTNT's stock price forecast for 2024 was disappointing due to a slowdown in growth of the network "firewall" appliance market.
Palo Alto Networks, a competitor in the market for network firewalls, reported earnings on November 15.
FTNT shares plunged 18% in the early morning trading today to 47.26. PANW fell 2.7% to 293.50.
Check Point Software Technologies shares (CHKP), which are traded at around 136, have dropped 0.4%. The stock of CHKP fell on October 30 after its earnings report for the third quarter.
PANW's stock price has increased 79% since 2023, despite its exposure to the firewall market. Palo Alto Networks expanded its cloud-based service offerings through acquisitions.
Network firewall appliances check web applications and block malware. The demand for these devices on-premise has decreased as cybersecurity services are increasingly delivered through remote cloud computing platforms.
Firewall Market in Cyclical Downswing: FTNT Stock
Fortinet reported earnings per share (EPS) of 41 cents on Thursday, up by 24% compared to a year ago. This was higher than the 36-cent profit estimate.
FTNT's revenue for the stock was $1.334 billion (up 16%), below expectations of $1.35 million.
Shaul Eyal, TD Cowen's analyst, said in a recent report that "for the first time ever since FTNT became public in 2008, revenue from its appliances business has decreased on a year over year basis." The slowdown was widespread across the two main regions, as the networking firewall industry has entered a downturn.
Billings is a measure of sales growth that was missed in Q3. Fortinet reported $1.49 billion in billings, an increase of 6%. This was below the expected 12% growth.
Andrew Nowinski, an analyst at Wells Fargo, said in a report that "management guided for billings declines of 5% over the year in Q4". They do not expect double-digit growth until the second half of 2024.
SASE Market: Cybersecurity Stocks are a Great Investment
Fortinet's management informed analysts that the company intends to refocus its efforts on Secure Access Service Edge (SASE). These tools provide security for remote workers and branch office.
SASE is also sold by Zscaler and Palo Alto Networks. SASE cloud services replace VPNs, which are less secure.
Check Point Software reported $2.07 EPS for the third quarter of 2010, up 17% compared to a year ago. Revenue increased 3% to $596.3 million.
Analysts had estimated EPS at $2.02 based on $592 million in revenue. The $530.9-million billings were down 5% compared to a year ago, and missed the 10% growth estimate.
Earnings due for PANW stock on Nov. 15,
Jonathan Ho, an analyst at William Blair, said in a recent report that Fortinet had delivered disappointing results for the second consecutive quarter, as well as guidance reflecting a declining demand for firewall hardware. He downgraded FTNT to market perform.
We believe that investors will have to be patient, as the transition from hardware to SaaS companies faces both technical and market challenges. We view 2024 as the year of transition when the company must go through the realignment and still maintain 25% or higher operating margins.
Analysts expect Palo Alto Networks to report earnings on November 15, and predict a profit increase of 40%, or $1.16 per share. The report may move PANW's stock.