Shares of cybersecurity firm Fortinet plunged Friday on its third-quarter results. The company's 2024 outlook for FTNT stock disappointed amid slowing growth in the market for network "firewall" appliances.
Palo Alto Networks, also a player in the network firewall market, reports earnings on Nov. 15.
On the stock market today, FTNT stock plunged 12.4% to close at 50.48. PANW stock fell 2.7% to 243.53.
Shares in Check Point Software Technologies edged up a fraction to 136.92. CHKP stock retreated Oct. 30 on its September quarter earnings report.
Despite its exposure to the network firewall market, PANW stock has climbed 79% in 2023. Palo Alto Networks has expanded into cloud-based services through acquisitions.
Network firewall appliances block unauthorized traffic and check web applications for malware. Demand for these on-premise devices has slowed amid a shift to cybersecurity services delivered via remote cloud computing platforms.
FTNT Stock: Firewall Market In Cyclical Downswing
Fortinet late Thursday reported EPS of 41 cents, up 24% from a year earlier. That topped estimates for 36-cent adjusted profit.
Revenue for FTNT stock came in at $1.334 billion, up 16%, below estimates of $1.35 billion.
"For the first time since FTNT went public, revenue in its appliances business contracted on a year-over-year basis," said TD Cowen analyst Shaul Eyal in a report. "The slowdown was broad-based across its two major regions as the networking firewall market has entered a cyclical downswing."
Billings, a sales growth metric, missed in Q3. Fortinet reported billings of $1.49 billion, up 6%, missing estimates for 12% growth.
"More importantly, management guided for billings to decline 5% year over year in Q4," said Wells Fargo analyst Andrew Nowinski in a report. "They do not expect growth to return to double digits until the back half of 2024."
Cybersecurity Stocks: SASE Market Beckons
Fortinet management told analysts the company plans to refocus on Secure Access Service Edge, or SASE. These security tools support remote workers and branch offices.
Zscaler and Palo Alto Networks also sell SASE products. Cloud-based SASE services replace less secure virtual public networks, or VPNs.
Check Point Software on Oct. 30 reported Q3 EPS of $2.07, up 17% from a year earlier. Revenue rose 3% to $596.3 million.
Analysts had modeled EPS of $2.02 on revenue of $592 million. Billings of $530.9 million declined by 5% from a year earlier, missing estimates for 10% growth.
Earnings Due For PANW Stock On Nov. 15
"For the second quarter in a row, Fortinet delivered disappointing results, and guidance that reflects declining demand for its firewall hardware," said William Blair analyst Jonathan Ho in a report. He downgraded FTNT stock to market perform.
"We believe investors will need to be patient as the hardware to SaaS company transition faces both technical and go-to-market challenges. We see 2024 as a transition year when the company will have to go through the realignment process while still preserving 25% or better operating margins."
Meanwhile, when Palo Alto Networks reports earnings on Nov. 15, analysts estimate profit growth of 40% to $1.16 per share. The report could move PANW stock.
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