Fortinet Shares Plunge 25% in Pre-Market Despite Beat on Q3 Estimates

Fortinet shares plunged by 25% in pre-market trading on the Nasdaq following the release of third-quarter financial results that beat market expectations, but by a margin investors found insufficient. The cybersecurity giant, which closed yesterday at a market capitalization of $127.7 billion following a 120% surge since the beginning of the year, reported quarterly revenue of $2.08 billion and an adjusted earnings per share of 91 cents. Analysts surveyed by the market had expected revenue of $2.06 billion and an adjusted profit of 86 cents per share.

Billings, a key metric encompassing unearned revenue, grew by 29% to $2.336 billion, slightly exceeding forecasts of $2.308 billion. However, the services division recorded revenue of $1.31 billion, falling short of expectations that stood at $1.33 billion. In addition, the company slightly lowered its annual revenue guidance for its services division, dampening investor sentiment.

Analysts at Wells Fargo attributed the steep sell-off to the fact that the beat over expectations was significantly narrower than what Wall Street has grown accustomed to seeing from Fortinet. For instance, billings exceeded market consensus by a mere 2%, compared to an 11% beat in the previous quarter. Meanwhile, the products division posted a 37% year-over-year growth, slowing down from a 52% surge in the second quarter.

The earnings report, released after the New York market close, sent shockwaves through the cybersecurity sector. Pre-market trading dragged major competitors down by more than 5%, including Palo Alto Networks, CrowdStrike, and Zscaler.