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Why Is Fortinet (FTNT) Up 3.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fortinet (FTNT - Free Report) . Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Fortinet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fortinet's Q4 Earnings Beat But Revenues Lag Expectations

Fortinet Inc. reported better-than-expected earnings results for the fourth quarter of 2022 and provided strong guidance for the first quarter and full-year 2023.

Fortinet reported fourth-quarter 2022 non-GAAP earnings per share (EPS) of 44 cents, which topped the Zacks Consensus Estimate of 39 cents. The bottom line improved 76% from the year-ago quarter’s earnings of 25 cents per share.

However, total revenues of $1.28 billion marginally fell short of the consensus mark of $1.29 billion but improved 33% year over year. The top line was driven by the strong demand for the company’s Core and Enhanced Platform Technologies.

Strategic investments in developing powerful products and services and efforts in expanding into adjacent addressable markets and boosting the firm’s global sales force aided Fortinet’s quarterly performance.

Quarter in Detail

Segment-wise, Product revenues jumped 42.5% year over year to $540.1 million. This upside can be attributed to the continued adoption of the FortiGate-based secure SD-WAN solution, strong revenues from non-FortiGate products and increased demand for integrated security fabric products.

Services revenues climbed 27.1% to $742.9 million, primarily driven by strong product revenue growth and strength in the company’s security subscriptions. Billings were up 31.6% to $1.72 billion, primarily driven by a 40% increase in Enhanced Platform Technology billings, which accounted for more than one-third of the total billings.

As of Dec 31, 2022, deferred revenues were $4.64 billion, up 34.4% year over year.

Geographically, the EMEA region registered the highest top-line growth with a 37.6% increase, followed by the Americas’ 36.9% and the APAC’s 18.7%. In the fourth quarter, the Americas accounted for 40.6% of the total revenues, while the EMEA and APAC accounted for 39.8% and 19.6%, respectively.

During the December-end quarter, the company secured 181 total deals worth $1 million or more each. Secure SD-WAN continued to be the leading contributor to growth in terms of the number of deals worth more than $1 million in the quarter.


The non-GAAP gross margin expanded 30 basis points (bps) year over year to 77.6% in the fourth quarter of 2022. This reflects an expansion of 310 bps in the Product gross margin, while the Services gross margin contracted 40 bps.

Legacy pricing actions, easing supply-chain cost pressures and improved discounting drove the Product gross margin higher. However, the increased labor cost and expansion in cloud services and related hosting costs dragged down the Services segment’s gross margin.

Non-GAAP operating income jumped 52% to $417.6 million in the reported quarter. Meanwhile, the non-GAAP operating margin increased 400 bps to 32.5%, mainly benefiting from the improved gross margin and a positive impact of foreign currency exchange rates.

Balance Sheet & Cash Flow

Fortinet exited the fourth quarter with cash and cash equivalents and short-term investments of $2.19 billion, up from the $1.70 billion reported at the end of the third quarter of 2022.

During the reported quarter, FTNT generated operating and free cash flows of $528.1 million and $497.2 million, respectively. During the full-year 2022, the company generated operating cash flow of $1.73 billion and free cash flow of $1.45 billion.

In the fourth quarter, the company didn’t buy back common stock. In the full-year 2022, it bought back $1.99 billion worth of shares.


Fortinet issued impressive guidance for the first quarter and full-year 2023. For the first quarter of 2023, the company estimates revenues in the range of $1.18-$1.22 billion. Billings are estimated in the band of $1.415-$1.465 billion.

The non-GAAP gross margin is expected in the range of 75-76%, while the non-GAAP operating margin is anticipated between 23% and 24%. Non-GAAP EPS is projected at 27-29 cents. The company assumes a non-GAAP effective tax rate of 17% for the first quarter and diluted shares outstanding between 795 million and 805 million.

For 2022, Fortinet predicts revenues in the band of $5.37-$5.43 billion. Service revenues are projected in the range of $3.335-$3.365 billion. Billings are now expected in the range of $6.71-$6.79 billion.

The non-GAAP gross margin and the operating margin are expected in the band of 75-76% and 25-26%, respectively. Non-GAAP EPS is now anticipated between $1.39 and $1.41. It forecasts a non-GAAP effective tax rate of 17% and a diluted share count between 805 million and 815 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 8.4% due to these changes.

VGM Scores

Currently, Fortinet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fortinet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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