Key Takeaways
- Fortinet fell 20% today despite beating third-quarter estimates and raising its 2026 outlook.
- Palo Alto Networks, CrowdStrike and Zscaler fell with it, and Check Point reports next week.
- Billings grew 29%, but service revenue grew just 13%, and BofA downgraded the stock over a “disappointing slowdown.”
- The drop looks overdone, given Fortinet’s $818 million rise in deferred revenue so far this year.
Fortinet (FTNT) beat estimates after Wednesday’s close. Third-quarter revenue rose 20% to $2.08 billion, and adjusted EPS came in at $0.91, against the $0.77 analysts expected. It also raised its 2026 outlook. The stock sank 20% this morning anyway.
The selling spread across cybersecurity. Palo Alto Networks (PANW) fell 4%, CrowdStrike (CRWD) 2% and Zscaler (ZS) 3%. And Check Point Software (CHKP) reports early next week.
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The mix disappointed
Billings jumped 29% to $2.34 billion as customers bought new firewalls, lifting product revenue 37%. But service revenue grew just 13%. Management said on the call that service revenue lags the large deals it billed, and expects it to improve in 2027.
BofA downgraded the stock to Neutral from Buy this morning, calling it a “disappointing slowdown.”
That 2027 pickup matters, because analysts expect revenue growth to slow from 20% this year to 11% next year.
The service revenue is already billed
Fortinet’s deferred revenue rose $818 million in the first nine months of 2026, almost three times its rise a year earlier. It’s the best evidence for the pickup management promised.
The rest of the group has even less to answer for. CNBC’s Jim Cramer called Fortinet “a single threaded hardware business” on X. He set it against Palo Alto, which he said Nikesh Arora turned into “a powerhouse platform business.” CrowdStrike and Zscaler don’t sell firewalls at all, so Fortinet’s slow conversion of firewall deals into subscriptions says little about them.
Check Point is the better test. Its second-quarter revenue grew just 1%, while security subscriptions grew 12%, so the rest of its revenue shrank. The firewall upgrades lifting Fortinet’s product sales hadn’t reached Check Point as of June. Will next week’s report show hardware sales picking up, with subscriptions keeping pace?
Cheaper than usual
At Wednesday’s close, Fortinet traded at 48x forward earnings, above its five-year average of 43x.
At today’s price, it’s about 35x, below that average.
My take: the market is pricing in the end of the firewall boom, but the deferred revenue says the services are coming.
The first test is fourth-quarter billings, which Fortinet guided to $2.775-$2.925 billion. If services haven’t started catching up by then, BofA will look right.
So what is Fortinet stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
