Fortinet stock plunge of 25% follows a beat and a margin slip
Fortinet beat third-quarter estimates and raised its revenue outlook, but a lower gross margin, slower growth and a cut to its services forecast sent the stock down about a quarter after hours.
Beating estimates was not enough for Fortinet. The Fortinet stock plunge on Wednesday evening, roughly 25% to 26% in extended trading, came after a quarter that topped forecasts on revenue and earnings but showed a thinner margin and slower growth.
What happened
Third-quarter revenue rose 20% to $2.08 billion and adjusted earnings came in at 91 cents a share, against analyst forecasts of $2.06 billion and 86 cents, SiliconANGLE reported. Billings grew 29% to $2.34 billion. Product revenue, driven by FortiGate firewalls, jumped 37% to $765 million, while services rose a slower 13% to $1.31 billion.
That mix shift is what hurt. Non-GAAP gross margin was 79.6%, below the 80.1% analysts polled by LSEG expected, CNBC said, because hardware carries lower margins than subscriptions. Fortinet also now sees full-year service revenue of $5.15 billion to $5.17 billion, from $5.18 billion to $5.22 billion three months ago.
The rest of the guidance was higher. Full-year revenue is now seen at $8.125 billion to $8.215 billion, and founder and CEO Ken Xie said demand allowed the company to raise billings guidance for the third time this year. Fourth-quarter revenue guidance is $2.155 billion to $2.245 billion.
Profitability on the bottom line was solid. GAAP net income climbed to $635.5 million, up from $473.9 million in the same quarter last year, while free cash flow came in at $865 million, SiliconANGLE said. During the quarter Fortinet also bought AI runtime protection startup Virtue AI for an amount it called immaterial, adding tools that complement its FortiAIGate product. The board also added $1.2 billion to the share repurchase authorization, leaving $2 billion available, the release said.
Why it matters
Expectations were the real problem. The shares had more than doubled this year before the report, and revenue growth slowed to 20% from 26% in the second quarter, SiliconANGLE noted. The Fortinet stock plunge spread across the sector: Palo Alto Networks, CrowdStrike and Zscaler lost 6% to 7% after hours, and Tenable fell more than 5% despite its own beat. Gen Digital, which sells consumer security, rose.
The pattern is familiar from this earnings season. Companies priced for perfection are being punished for small blemishes, as with Lam Research and Bloom Energy, even when headline numbers hit records. For security vendors, the worry is that more revenue from boxes and less from recurring services lowers the quality of growth.
What's next
Regular trading on Thursday will show whether the Fortinet stock plunge holds or partly reverses once analysts update their models. Fortinet guided fourth-quarter adjusted earnings of 93 to 95 cents a share, billings of $2.775 billion to $2.925 billion and a gross margin of 78% to 80%. Tenable, caught in the same selloff, lifted its 2026 sales guidance to a range of $1.084 billion to $1.087 billion. Details are in the Fortinet earnings release.
This article is for information only and is not investment advice.