Fortinet, Inc. (FTNT.US) Service Business Growth Continues to Slow, Wall Street Analysts are Bearish on the Sentiment

Fortinet, Inc. (FTNT.US) previously announced strong third-quarter performance, but analysts point out that this cybersecurity company needs to ensure it can increase its service revenue growth in 2026. The company reported adjusted earnings per share of $0.74 for the third quarter, surpassing market expectations of $0.63. Revenue increased by 14% year-over-year, reaching $1.72 billion, exceeding the market's forecast of $1.7 billion. Looking ahead, Fortinet, Inc. expects fourth-quarter revenue to be between $1.83 billion and $1.89 billion, with a midpoint of $1.86 billion, lower than the expected $1.88 billion; adjusted earnings per share are expected to be between $0.73 and $0.75, exceeding the expected $0.67. For the full year 2025, Fortinet, Inc. has adjusted its revenue guidance range to $6.72 billion to $6.78 billion, compared to the previous range of $6.68 billion to $6.83 billion. The company also expects full-year adjusted gross margins to be between 80.3% and 80.8%, compared to the previous guidance range of 79% to 81%. Needham maintains a "hold" rating on Fortinet, Inc., but does not set a price target. Needham analysts stated, "We find that the slow growth in service revenue is the main reason, attributed by management to the lagging impact of last year's decline in product revenue (as the typical service cycle for products is 29 months). Looking ahead to next year, management mentioned some new innovative initiatives, such as new dedicated integrated circuits and the FortiOS system, but most importantly, management expects an improvement in service revenue growth in the second half of 2026, based on the improvement in this year's product trends." Meanwhile, Citigroup maintains a "neutral" rating but lowers the target price from $85 to $83. Citigroup analysts said in a report, "The continued slowdown in service revenue growth for the 10th consecutive quarter, the second consecutive downward revision to this fiscal year's service revenue expectations, and no signs of a rebound in the near term (we expect around 10% in the first half of 2026, gradually increasing to about 13% in the second half), so we expect the stock price to be under pressure." Mizuho maintains its "underperform" rating and lowers the target price from $75 to $72. Mizuho analysts said, "While Fortinet, Inc. has performed well overall in business expansion in recent years, the recent executive work has been challenging, and growth in the next few quarters is expected to face pressure. In addition, the competition in the SASE and SecOps markets is fierce (Fortinet, Inc. started late in the former), and we are skeptical about whether this situation will have a significant impact in the short term." Oppenheimer continues to maintain its "neutral" rating after the earnings announcement but does not set a price target. Oppenheimer analysts said in a report, "This continued weak trend raises doubts about the stability of Fortinet, Inc.'s growth trajectory and raises concerns about factors such as service attachment rates, competitive position, and customer deployment. The decline in Fortinet, Inc.'s SASE annualized revenue growth rate also casts a shadow over long-term growth. Given the uncertainty of service and SASE annualized revenue growth rates and limited understanding of the sustainability of product momentum after the product update cycle, we currently remain cautious and wait for clearer signs of a turning point." Finally, Wedbush is the most optimistic, maintaining an "outperform" rating but lowering the target price from $100 to $90. Wedbush analysts said in a report, "The focus remains on profit margins. Due to the continued transformation of service revenue to higher profit margin levels, earnings per share reached $0.74, higher than the market's expectation of $0.63 and the company's guidance of $0.62 to $0.64. Additionally, a gross margin of 81.6% is higher than the market's expectation of 80.6% and the company's guidance range of 80% to 81%. Operating profit margins of 36.9% are also significantly higher than the market's expectation of 32.9% and the company's guidance range of 32.5% to 33.5%, thanks to strong execution and cost management, despite increased investments across the entire business portfolio."