Overview
Fortinet
FTNT · NASDAQQ3 2026Cybersecurity · Network Security / Firewalls
Since the Report − 25.7%
Revenue grew 20.5% year over year, EPS beat the estimate by 5.8%; the stock fell 25.7% in its first reaction.
- RevenueQ3
- $2.08B
- ▲ 20.5% YoY · Beat Estimate by 0.9%
- EPSAdjusted
- $0.91
- Estimate $0.86 · Beat by 5.8%
Verdict
HOLDFortinet's third-quarter revenue was in line with expectations, earnings beat by 5.8% and the company raised its full-year revenue outlook. The stock still fell 25.7% after hours, because service revenue missed and the company cut its full-year service revenue guidance. The measure to watch now is how fast service billings turn into revenue.
Close on Report DayOct 28
$174.08▼ 25.7%Report-Day Move
- Market Cap(Today)
- ≈ $94.9 B
- 1Y Return(At Report)
- + 103%
- P/E(At Today's Price · $3.44 · Trailing 12M)
- 37.6
- PEG(Company Guidance 2026)
- 1.30
- Net Margin(Trailing 12M)
- 28.2%
Earnings Summary
In 30 Seconds- Revenue rose 20.5% to $2.08 billion, and adjusted EPS of $0.91 beat the estimate by 5.8%.
- Full-year revenue guidance went up, but service revenue guidance was cut to $5.15-5.17 billion.
- The stock fell 25.7% after hours because the market focused on slowing recurring service revenue.
The Numbers
Billings
$2.34B
▲ 29% YoY · Beat Estimate by 1.6%
Adjusted Gross Margin
79.6%
2.0 Point Contraction YoY · Q2 80.9%
Adjusted Operating Margin
38.2%
1.3 Point Expansion YoY · Q3 Record
Stock Reaction
−25.7%
After Hours · Price Is Oct 28 Close
Quarterly Revenue ($ Billion)
1.72
Q3 25 · $1.72 B
1.91
Q4 25 · $1.91 B · QoQ + 10.4%
1.85
Q1 26 · $1.85 B · QoQ − 2.9%
2.05
Q2 26 · $2.05 B · QoQ + 10.7%
2.08
Q3 26 · $2.08 B · QoQ + 1.5% · YoY + 20.5%
2.155–2.245
Q4 26E · 2.155–2.245 · QoQ + 5.9% · YoY + 15.5%
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26E
Q4 2026 Company Guidance
- Revenue (Q4)2.155 – 2.245 B2.155 B2.245 B
Midpoint 2.20 · Market Expectation 2.161.9% Above Estimate ▲
- Adjusted EPS (Q4)0.93 – 0.95 $0.93 $0.95 $
Midpoint 0.94 · Market Expectation 0.886.8% Above Estimate ▲
- Billings (Q4)2.775 – 2.925 B2.775 B2.925 B
Midpoint 2.85 · Year Ago 2.3720.2% Annual Growth ▲
- Full-Year Revenue8.125 – 8.215 B8.125 B8.215 B8.125 – 8.215 B
Prior Guidance 8.02–8.18 · Market Expectation 8.12Raised 0.9% ▲
- Full-Year Service Revenue5.15 – 5.17 B5.15 B5.17 B5.15 – 5.17 B
Prior Guidance 5.18–5.22Cut 0.8% ▼
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±7.3% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Service$1.31 BShare 63.2%▲ 12.7% YoY
Security subscriptions and technical support
- Product$765 MShare 36.8%▲ 36.8% YoY
Includes FortiGate hardware
Key Metrics
Billings
$2.34 B
▲ 29.2% YoYPress Release
Free Cash Flow
$865 M
▲ 52.4% YoYPress Release
Operating Cash Flow
$946 M
▲ 44.4% YoYPress Release
Free Cash Flow Margin
41.6%
Press Release
Total Deferred Revenue
$7.93 B
Press Release
Remaining Buyback Authorization
$2.00 B
Press Release
Shares are computed over the segment total: $2.08 B. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We believe that network security is the most critical foundation of AI security, with the firewall serving as a centralized point of in-line enforcement across enterprise, operational technology and hybrid cloud environments. Demand is still very, very strong in the last few quarters. And even in Q3, we have not seen any slowdown in the demand. But on supply, the lead times got longer.”
- AI Security Starts at the Network
- No Slowdown in Demand
- Lead Times Getting Longer
Summary and Review
Summary
Fortinet reported third-quarter revenue of $2.08 billion. That is 20.5% growth, only 0.9% above the market expectation. Adjusted EPS of $0.91 beat the estimate by 5.8%. The midpoint of fourth-quarter revenue guidance came in 1.9% above expectations. So the revenue and guidance gates are in line, while the earnings gate is open. Billings rose 29% to $2.34 billion, beating the Zacks estimate by 1.6%. Adjusted operating margin of 38.2% was a third-quarter record.
The stock fell from $174.08 to $129.33 in after-hours trading. The loss was 25.7%, with an evening low of $127.30. The market did not read this report as product news but as service news. Service revenue grew 12.7% and missed the estimate by 1.2%. The company also cut its full-year service revenue guidance. The stock had also slipped 5.9% in the regular session before the report. It had doubled this year, so the bar was high. Palo Alto Networks, CrowdStrike and Zscaler fell 6-7% after hours.
Score 58, verdict hold. The quarter was not weak: operating margin set a third-quarter record and free cash flow rose 52%. But the mix of growth is changing. Hardware sales and price increases drive revenue, while recurring service revenue lags. Adjusted gross margin contracted 2.0 points year over year. Management says the service delay is temporary, but the numbers do not show that yet. Profit and cash are strong, while growth quality is weakening. That places the gate table in the middle of the hold band.
Full Review
Product accelerated, service lagged.
Product revenue was $765 million. Growth was 36.8%, well above estimates. This line tracks demand for FortiGate firewalls. According to the earnings call, deals above $1 million grew 51%. Operational technology billings rose about 40%. Service revenue, however, came in at $1.31 billion. That is 12.7% growth and 1.2% below the estimate. Service makes up about two-thirds of total revenue. The company's valuation rests largely on this recurring revenue. In short, the strong line is the small one and the weak line is the big one. Product's share of revenue rose to 37% from 32.4% a year ago. Management said a shift to higher-capacity models lifted average selling prices.
Why the service guidance cut matters.
The company raised full-year revenue guidance from $8.02-8.18 billion to $8.125-8.215 billion. The midpoint moved up 0.9%. Service revenue guidance fell from $5.18-5.22 billion to $5.15-5.17 billion. That is a 0.8% cut at the midpoint. So the entire increase in total revenue comes from hardware. CFO Christiane Ohlgart called the delay a timing issue. Large enterprise customers install hardware and activate services in phases. According to figures shared on the call, service billings grew 26% and short-term deferred revenue grew 14.5%. That rate is the highest in five quarters. When service billings grow faster than revenue, the gap builds up in deferred revenue. Total deferred revenue reached $7.93 billion. The market has not bought this explanation yet.
Operating margin at a record, gross margin under pressure.
Adjusted operating margin was 38.2%. That is 1.3 points above the 36.9% of a year ago and a third-quarter record. Adjusted gross margin fell to 79.6%. It was 81.6% a year ago and 80.9% in the second quarter. The annual contraction is 2.0 points. The causes are a higher product mix and component costs. GAAP product gross margin fell from 67.7% to 64.4% in a year. Management said cheap inventory supported margins in the first half, while costs rose in the second half. Fourth-quarter gross margin guidance is 78-80%. That band suggests margins could fall below the third quarter. Service gross profit rose 13.2% and offset part of the decline. According to the call, price increases contributed about 10 points to billings growth.
Cash is strong, buyback authorization expanded.
Operating cash flow was $946 million, up 44.4%. Free cash flow was $865 million, up 52.4%. Free cash flow margin was 41.6%. The company increased its buyback authorization by $1.2 billion. The remaining authorization is $2 billion. That equals about 2% of the post-drop market value. The balance sheet holds $5.3 billion in cash and investments. The company bought back $973 million of stock in nine months. It also repaid $500 million of notes. That pace leaves ample room to buy at the lower price. So the drop is not a cash problem but a growth quality problem. See the cash flow guide and the buyback guide for background.
Next quarter, watch a single line.
In the fourth-quarter report, look at year-over-year service revenue growth. The new full-year guidance implies about 12.6% service growth in the fourth quarter. The top of the range equals 13.5%. If growth rises above 13.5%, management's timing explanation holds. In that case the drop may read as an overreaction. If growth falls below 12%, the problem is not timing but service attach rates. Then growth would slow sharply once the product cycle ends. New subscriptions such as the FortiGuard Inline AI Security service could support this line. Their contribution will show up there first. The second measure is 2027 guidance. The company said service growth would be higher than in 2026. For reading earnings day, see the guide.
Looking Ahead
Strengths and Risks
5 Strengths · 5 RisksStrengths
5- Billings rose 29% to $2.34 billion, and the company raised full-year billings guidance for the third time this year.
- Adjusted operating margin of 38.2% was a third-quarter record, up 1.3 points year over year.
- Free cash flow rose 52.4% to $865 million.
- Product revenue grew 36.8%, and according to the call, deals above $1 million grew 51%.
- The buyback authorization was raised by $1.2 billion, leaving $2 billion available.
Risks
5- Service revenue grew 12.7% and came in 1.2% below the estimate.
- Full-year service revenue guidance was cut by 0.8% at the midpoint.
- Adjusted gross margin contracted 2.0 points to 79.6%, and the fourth-quarter band is 78-80%.
- Management said lead times lengthened and costs rose for some components.
- About 10 points of billings growth came from price increases, which may not last.
What to Watch
3- Management will present at the BMO technology conference on November 12, 2026.
- The company will attend the UBS conference on December 2 and the Barclays conference on December 9.
- Fourth-quarter results and 2027 guidance are expected in early February 2027.
Upcoming Earnings
To Understand This