Taking A Closer Look At Fortinet's Q4 2015 Results

| About: Fortinet, Inc. (FTNT)


Fortinet reports 4Q:15 billings results ahead of Street expectations.

Fortinet guides for 23% billings growth and margin expansion.

Solid results coupled with a reasonable FY16 outlook are sufficient to reignite interest in Fortinet shares.

What Happened

Fortinet's (NASDAQ:FTNT) shares surged 6.75% on Friday after the cyber security firm delivered strong results for the fourth quarter, posting billings growth of 35% year-over-year (YoY) and revenue growth of 32% over the same period. While management guidance for the March quarter was below Street estimates on billings, revenue and pro forma earnings share, the company's full-year outlook was above both benchmarks on all three metrics. Moreover, Fortinet has exceeded revenue and billings guidance in nine of the last ten quarters, so this guidance may prove to be conservative. Management indicated it is taking a more conservative view on guidance due to the increasing macro uncertainty, particularly in regard to the potential follow-on effects of China. However, management was clear that it had not observed immediate issues among its markets.

Fortinet continues to successfully move upstream and ink larger deals as the company's product footprint broadens out, coupled with a salesforce expansion strategy that appears to be paying off, as evidenced again this quarter. During the quarter, there were 384 deals between $100,000 and $250,000 in value, up from 247 last year, 119 deals between $250,000 and $500,000, up from 77, and 74 deals over $500,000, up from 60 in the prior year.

Positive Takeaways:

  • Billings grew 35% to record levels of $381 million, exceeding consensus estimate of $367.5 million.
  • All geographies reported strong YoY growth, with the Americas at ~33% and EMEA at ~35%.
  • Fortinet's high-end appliances continued to perform well, accounting for 42% of billings, and its APT product has tripled YoY.

Negative Takeaways:

  • Product revenue of $145 million was shy of consensus $147 million estimate.
  • Some Canada-specific related softness coupled with macro uncertainty in commodity-related economies are still factors preventing Fortinet from exhibiting even better performance.


The company is executing fairly well, and the internal segmentation firewall market continues to be an attractive market for the company's differentiated solutions. Furthermore, Fortinet's growth prospects continue to be strong and its solutions continue to be well received in the marketplace. The results of this quarter and management commentary on its outlook, particularly regarding margin expansion through 2020 that would approach its long-term operating model of 20%, should restore confidence in the long-term profitability of the company.

That said, Fortinet's shares could show solid performance following: 1) Solid 4Q results and FY16 guidance, 2) Strong billings performance and outlook, 3) Continued investments, 4) Ongoing shift toward becoming a platform provider supporting vendor consolidation.

Overall, the cyber security sector thus far has seen solid results from the likes of Check Point (NASDAQ:CHKP), Proofpoint (NASDAQ:PFPT) and FireEye (NASDAQ:FEYE), to a lesser extent, as Street worries about waning growth in the sector appear to be overdone in the near term, despite a choppy macro.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.