Fortinet, Inc. (FTNT): A Bull Case Theory

Core Thesis - Fortinet, Inc. is experiencing strong financial performance, with significant growth in revenue and margins, positioning the company favorably for sustained growth despite some concerns in service revenue [2][5]. Financial Performance - Fortinet reported Q3 revenue of $1.72 billion, a 14% year-over-year increase, driven by strong performance in EMEA and APAC markets [2]. - Product revenue increased by 18% to $559 million, attributed to multi-product deals and expansion in operational technology (OT) security [2]. - Service revenue rose 13% to $1.17 billion, although it has been decelerating for nine consecutive quarters, with expectations for growth to pick up in the second half of 2026 [2]. Billings and Customer Growth - Billings reached $1.81 billion, exceeding guidance, with large deals over $1 million increasing by 32% year-over-year [3]. - The company added approximately 6,600 new customers, indicating strong demand and deal momentum [3]. Profitability Metrics - Non-GAAP EPS was reported at $0.74, a 17% increase year-over-year, significantly above consensus estimates [3]. - Operating margins reached a record 36.9%, reflecting effective cost management and operational efficiency [4]. - Gross margins remained robust at 81.6%, despite a slight decline due to product mix shifts [3][4]. Capital Management - Fortinet executed a $1.83 billion share repurchase program, with $796 million remaining under its current authorization [4]. - Adjusted free cash flow totaled $646 million, representing a 37% margin, even with increased infrastructure spending [4]. Strategic Outlook - Despite concerns over decelerating service revenue and moderated 2025 guidance, Fortinet's strong product performance and operational efficiency position it well for future growth [5]. - The combination of high-margin product expansion, disciplined cost management, and shareholder-friendly actions highlights Fortinet's ability to generate durable cash flow [5].