Fortinet, a cybersecurity firm that provides best-in-class hardware for data center security, has been a fantastic investment for years. For every cloud service we use at home (like Netflix) or work (Microsoft Office 365), a data center is somewhere doing the computing work. With work-from-home here to stay, data center construction is picking up steam, so Fortinet remains our favorite cybersecurity stock here at Concinnus Financial.
Third quarter 2021 highlights
Fortinet reported total revenue of $867 million, up 33% year-over-year.
It’s “products” segment, which represents nearly 40% of total sales in Q3, was up 51% to $337 million.
Service sales (recurring revenue from software) grew 24% year-over-year in Q3 2021, up from 22% in Q3 2020.
Free cash flow was $330 million, an astonishing 77% increase, giving them a free cash flow profit margin of 38%.
Secure processing units (SPUs) and firewalls -- chips and hardware designed to secure data centers -- are Fortinet’s forte. With cloud computing steadily expanding at a rapid rate, these SPUs are in high demand at the moment. Additionally, many organizations are looking to move data out of large centralized data centers (like at Microsoft Azure or Amazon AWS) into smaller localized ones they own and operate themselves.
As seen in the free cash flow numbers, Fortinet is growing it’s profitability. This comes in spite of investing more money into research and development of new security services. Cybercrime is on the rise, and organizations around the globe are increasing their spend to keep data safe. So Fortinet continues to foster new services to pair with its best-in-class hardware.
In our mind, Fortinet is an underrated leader in cybersecurity. It’s days of fast pace growth seem to be far from over. The outlook for Q4 2021 calls for revenue to be up 26% to 30% year-over-year to at least $940 million as data center construction heats up this year and in 2022. Given its rapid and consistent pace of growth over the years, we are happy shareholders as demand for the cybersecurity industry expands in the coming years.
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