Why Fortinet, Inc. (FTNT)’s Investors Are Feeling More Secure

Page 1 of 2

Try to envision a tech world where security isn’t a chief concern. Financial documents wouldn’t need firewall protection and email accounts would no longer require passwords. Now wake up. In the meantime, companies such as Fortinet, Inc. (NASDAQ:FTNT, which protects corporate enterprises from hackers and other intruding threats, are in a market with attractive long-term fundamentals.

Granted, Check Point Software Technologies Ltd. (NASDAQ:CHKP)‘s depressing fourth-quarter results suggested the contrary. But Fortinet delivered the goods. While this rivalry was once a classic case of “dog eat dog,” that’s not so much the scenario today.

Fortinet Inc (NASDAQ:FTNT)Recovering from a dismal third quarter
Saying Fortinet has had some recent challenges would be an understatement. Not only is the company coming off of an uninspiring third quarter which showed declining profitability, but Ken Goldman, Fortinet’s CFO, left to assume the same post at Yahoo! Inc. (NASDAQ:YHOO).

The uncertainty caused the stock to drop 10% in the trading sessions that followed. Needless to say, Fortinet had plenty to prove in this fourth-quarter report, and the company came through. Fortinet beat both top and bottom line estimates. Revenue surged 25% year over year to more than $151 million, topping consensus of $144 million.

Likewise, profitability was solid, as non-GAAP earnings per share registered at $0.17, up 21% year over year and $0.02 better than Street estimates. Net income of $28.1 million advanced 21% sequentially and grew 26% year over year. All of this suggests that Fortinet is now over this temporary bump in execution and the company is kicking major tail.

Looking for the kill shot
Now onsider Check Point’s recent results. Although Check Point is considered the best in its class, it’s no longer looking that way — at least not according to the top line, where the company just posted 3% revenue growth. Making matters worse, this marked the seventh consecutive quarter where Check Point posted deteriorating year-over-year sales.

This means that Check Point is losing meaningful market share not only to Fortinet, but also Cisco Systems, Inc. (NASDAQ:CSCO) and possibly smaller rivals such as Palo Alto Networks Inc (NYSE:PANW). Remarkably, it doesn’t appear as it Check Point cares.

For instance, not only did the company spend less this quarter on sales and marketing, but it seems to care more about preserving capital and less about preserving market share. I could be wrong, but that’s exactly what a meager 8.8% increase in research and development spending suggests.

By contrast, not only did Fortinet report a 20% increase in sales and marketing, but Fortinet also increased R&D expenses by 25%. Remarkably, and perhaps even more impressive, is despite this uptick in expenses, Fortinet still managed strong profits, showing that it never lost its focus on the bottom line.

Granted, non-GAAP gross margin shed 40 basis points year over year. But it arrived much better than estimates. Likewise, that operating income surged 28% means that management is maximizing the dollars earned from each new customer. While Check Point can boast about its impressive balance sheet, it won’t be too long before Fortinet can say the same.

Then again, Check Point still deserves the benefit of the doubt. There’s no question that it will eventually straighten things out. In the meantime, its lack of aggression should concern investors — especially since Fortinet is in full-throttle mode and looking for the kill.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!