Fortinet ( FTNT Quick Quote FTNT - Free Report) stock gained 2.7% on Wednesday after the cybersecurity firm forecast strong growth in revenues and billings through 2023.
During a virtual investor day on Tuesday, the company expected its revenues and billings to reach at least $4 billion and $5 billion, respectively, in 2023. The revenue and billing forecast suggests a strong increase of 54% and 62%, respectively, from that reported in 2020.
In 2020, the company’s total sales grew 20% year over year to $2.59 billion, while billings increased 19% to $3.09 billion.
For margins, Fortinet expects non-GAAP gross margin of 80%, while non-GAAP operating margin is anticipated to be at least 25%. In 2020, while non-GAAP gross improved 140 basis points (bps) to 78%, the operating margin expanded 210 bps to 26.9%.
During its last quarterly results reported on Feb 4, Fortinet had projected 2021 revenues and billings of $3.025-$3.075 billion and $3.56-$3.64 billion, respectively. Non-GAAP gross and operating margins are forecast to be 78-80% and 25-27%, respectively.
What’s Driving Fortinet’s Financial Performance?
Fortinet is a provider of network security appliances and Unified Threat Management (“UTM”) network-security solutions to enterprises, service providers and government entities worldwide.
Fortinet is benefiting from the rising demand for security and networking products amid the coronavirus crisis as a huge global workforce is working remotely now. More people logging into employers' networks means a greater need for security. The trend is spurring the demand for Fortinet’s products.
Fortinet is also gaining from its dominance in the UTM space, which is one of the faster-evolving segments in the network-security space. Moreover, the company is benefiting from the rising cyber-attack risks that are propelling the demand for its FortiMail platform.
Growing Adoption of Secure SD-WAN Bodes Well
The growing adoption of Software-Defined Wide Area Network (SD-WAN) solutions could be a key growth driver for Fortinet over the long run.
The market research firm
MarketsandMarkets predicts that the market size for SD-WAN solutions could grow to $8.4 billion by 2025 from $1.9 billion in 2020, indicating a CAGR of 34.5%. Moreover, Gartner ( IT Quick Quote IT - Free Report) predicts that 60% of enterprises would implement SD-WAN features by 2024, up from nearly 20% in 2019.
Additionally, with applications rapidly moving to the cloud and the rise of the remote-working trend, numerous IoT devices are added to the network, positioning the SD-WAN market for tremendous growth. Per 650 Group, as mentioned by
Hewlett Packard Enterprise ( HPE Quick Quote HPE - Free Report) , the market size for SD-WAN is likely to grow from $2.3 billion in 2020 to $4.9 billion in 2024, witnessing a CAGR of 20.5%.
The spurt of transformation is quickly diminishing the relevance of traditional WAN architectures, prompting enterprises to invest in the SD-WAN technology to secure and scale connections from their network edge to on-premises and cloud-based endpoints at lower costs.
As there are only a few vendors that offer security and SD-WAN solutions, Fortinet is well-positioned to capitalize on the increasing opportunities in the market.
Notably, Fortinet SD-WAN solutions’ contribution to 2020 total billings increased to 11% from nearly zero in 2018. SD-WAN billings reached $355 million in 2020, which almost doubled from the 2019 level. The company stated during the virtual investor day meet that SD-WAN sales will remain strong through 2023.
Fortinet currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology sector is
Apple ( AAPL Quick Quote AAPL - Free Report) , which currently carries a Zacks Rank #2 (Buy). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The long-term earnings growth rate for Apple is 11.5%.
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