Posted on Monday, Apr 16th 2018
I interviewed the CEO of Fortinet Ken Xie way back in 2010, a year after it went public. Ken had also co-founded NetScreen, which was acquired by Juniper for $4 billion stock in 2004 when it had revenue of $200 million. Both companies bootstrapped first and raised money later. Today, Fortinet (NASDAQ: FTNT) is a global leader in broad, automated, and integrated cyber security solutions with a market cap of close to $10 billion.
Sunnyvale, California-based Fortinet was founded in 2000 by brothers Ken and Michael Xie. Fortinet provides cyber security solutions to enterprises, service providers, and government organizations across the world. Its flagship network security solutions include FortiGate physical, virtual machine, and cloud platforms, which provide integrated security and networking functions to protect data, applications, and users from network-and content-level security threats.
Fortinet has four focus areas: FortiGate network security appliances; Fortinet Security Fabric for unified security across the entire digital attack surface; cloud security with FortiCASB, which is available across all major cloud providers, including Microsoft Azure, Amazon Web Services, Google Cloud, IBM Cloud and Oracle Cloud; and IoT.
Fortinet recently reported fourth quarter results that beat earnings and revenue estimates. Q4 revenue was $416.7 million, up 15%. GAAP net loss was $29 million, impacted by a one-time tax expense of $63 million. Non GAAP net income was $55.5 million or $0.32 per share. Analysts estimated earnings of $0.29 per share on revenue of $409.1 million.
Product revenue was $162.1 million, up 2% compared and Service revenue grew 25% to $254.6 million. Service revenue is generated primarily from FortiCare technical support services and FortiGuard security subscription services. A small portion of services revenue is also generated from professional services and training services.
For the full year 2017, revenue increased 17% to $1.49 billion. GAAP net income was $31.4 million for 2017, compared to GAAP net income of $32.2 million for 2016. Non-GAAP net income was $184.7 million for 2017, compared to non-GAAP net income of $129.5 million for 2016.
Product revenue was up 5% to $577.2 million in 2017. Service revenue was up 27% to $917.8 million in 2017.
As of December 31, 2017, cash, cash equivalents and investments were $1.35 billion. In 2017, Fortinet repurchased 11.2 million shares of common stock for an aggregate purchase price of $446.3 million.
It ended the year with 5,066 employees and contractors. It has over 340,000 customers. It has over 50 offices across US, Canada, Argentina, Mexico, Singapore, Japan, India, China, Indonesia, Malaysia, Korea, Philippines, Australia, France, the United Kingdom, Austria, Denmark, Suadi Arabia, UAE, and Germany. Its research and development teams are located primarily in Sunnyvale and Burnaby in Canada.
For the first quarter, Fortinet expects revenue in the range of $387 to $393 million, non-GAAP gross margin in the range of 75% to 76%, and non-GAAP EPS in the range of $0.21 to $0.22. Analysts expect earnings of $0.22 per share on revenue of $390 million.
For the fiscal year of 2018, Fortinet expects revenue in the range of $1.695 billion to $1.715 billion and non GAAP EPS of $1.30 to $1.32.
Questions for the Board
The cyber security industry is highly competitive. Fortinet’s competitors include Check Point, Cisco, F5 Networks, FireEye, Forcepoint, Imperva, Juniper, McAfee, Palo Alto Networks, Proofpoint, SonicWALL, Sophos, Symantec, Qualys, and Trend Micro.
Fortinet has had an impressive run with a strong focus on fundamentals.
In the section on risks in its annual report, Fortinet mentions that most of its platform is currently deployed on premise and if customers demand that its platform be provided through a SaaS or IaaS business model, it would have to make additional investments in its infrastructure and personnel to maintain the competitiveness of its platform. To address this demand, Fortinet plans to introduce a program later this year to create a more organized, repeatable way for partners to deliver virtual FortiGate instances via a utility-based model. Some Fortinet partners have already been delivering their own FortiGate as a Service offerings for over five years. Subscription-based models allow for rapid scaling without major Capex investment.
Over the years, Fortinet has made a couple of acquisitions including Wi-Fi hardware company Meru in 2015 for $44 million and IT security, monitoring and analytics software vendor AccelOps for $22 million.
What other companies does Fortinet have on its radar? Will it consider leveraging the unprecedented opportunity in SaaS that I recently talked about, especially to mitigate the risks discussed above?
Fortinet’s stock is trading at a 52-week high of $55.82 with a market cap of $9.4 billion. Its 52-week low was $35.44 in September last year. It had gone public in 2009, raising $156 million at a valuation of $804 million.
I am a big fan of businesses that have a strong focus on fundamentals. Fortinet is one such Unicorn that has never bothered with fluff, always executed precisely.
Now, can the company go to $10 billion in revenue in its next phase and take in its stride market shifts with respect to the cloud architecture?
This segment is a part in the series : Billion Dollar Unicorns
. How Marketo Is Faring In The Public Market . Workday's Ramp to Multi-Billion Valuation . ServiceNow's Expanding Market Opportunity . Tableau's Valuation Increases to $6 Billion . A Rare Media Venture Called Vice . Will Box Implode Post IPO? . Net-a-Porter Cracks The Luxury Fashion Market . Outbrain Prepares for an IPO . Palantir's Skyrocketing Valuation May Be Justified . Online Education Player Lynda.comMore »» . Pluralsight's Impressive Rise . Snapchat Explores Revenue Generating Options . Analysts Project Revenue for Pinterest . The Market Awaits Etsy's IPO . Taboola's Content Marketing Growth . Egnyte Eyes IPO in 18 Months . Web 3.0 and E-Commerce Investment Thesis of 3 VCs . Cleversafe's Unique IP Strategy . Cloud Investment Thesis of 5 VCs . GoDaddy Shying Away from IPO, Yet Again . Can Square Sustain Its Valuation? . Zulily Tumbles . MuleSoft Will Be Joining Soon . Bootstrap First, Raise Money Later . ShopClues in India Shows Unicorn Characteristics . What Have You Learned? . ASOS Shines From London . Xiaomi Overtakes Samsung in China . eClinicalWorks Bootstraps With A Paycheck . Strategies From 5 Entrepreneurs . Lending Club Focuses on Growth Post IPO . Slack Speeds Its Way To The Mark . Eventbrite Shies Away from an IPO . Meituan Leads China's Group Buying Market . Gilt Groupe Delays IPO . Veeam Wants To Stay Private . Nextdoor's Valuation Skyrocketing With No Sign of Revenues . Stripe Exploring Tie-Ups for Growth . HubSpot Sustains Solid Growth Post IPO . Shazam Makes it to the Club . OnDeck Scoring in Small Businesses Instant Loans . Fat Startup Adaptive Insights Leading in Cloud CPM . Cloudera Leverages Open-Source Hadoop to Create a Multi-Billion Dollar Business . Evernote Cracks the Freemium Model . Rocket Fuel Crashes on Results . MongoDB Rises High on NoSQL Databases . Shopify Preparing for an IPO . JustFab Getting Ready for an IPO . Kabam to Stay Private? . Adyen Bootstraps to Multi-Billion Valuations . RetailMeNot Worries About Mobile Monetization . Elance-oDesk Taking on the Freelance World . Farfetch Connecting Designers with Consumers . The Impressive Story of Airpush . athenahealth Enters the EHR Market . Privalia Dominates the Latin America Markets . Niche E-Commerce Works for Fanatics . Powa Puts London on the Map . RealReal Shows How to Consign Luxury Products . Vancl On A Roller Coaster Ride . Didi Dache is China's Uber . Dafiti Leading E-Commerce in Latin America . ServiceNow Expands Addressable Market . Flipboard Focuses on Monetization . Hootsuite Eyes an IPO . GoodData Riding High on Big Data Analytics Market Growth . Cheetah Mobile Part Of Chinese Contingent . Hortonworks Needs To Deliver Results . Clarabridge Wins by Analyzing Customer Sentiment . Tableau Continues its Precise Execution . Will Cloudera Sustain $5 Billion Valuation Post IPO? . Freshdesk is a Prospect . InMobi Wants to IPO in India . Zendesk Targets the Live Chat Market . New Relic Getting Ready to Battle with Microsoft . Twilio is Revolutionizing Telecommunications . Funding Circle is UK's Latest Entry to the Club . Luxury Retailer Moda Operandi on the Club's Runway . Splunk is Now Targeting the SMB Segment . Capital-Efficient StartApp Is A Prospect . AppNexus In The IPO 2015 Pipeline . Druva Poised to Produce an Indian Unicorn . MapR Readies IPO . Lookout Getting Ready for an IPO . Anaplan Gets Ready to Enter the Club . Blue Apron Simplifies DIY Gourmet Cooking . GoFundMe Bootstraps till the Half-Way Point . Containers Gives Docker Entry into the Club . Can Kaltura Be A Public Unicorn? . The Ride-Sharing Industry Continues to Deliver Unjustifiable Valuations . MarkLogic Making Waves in Enterprise NoSQL . CloudFlare Offers Website Security over the Cloud . Mixpanel Provides Advanced Analytics for SMBs . Spotify Gearing up to Face Apple Music . Auction.com in Expansion Mode . Nutanix Gives VMWare Tough Competition . Houzz Bootstraps in a Niche Space to Join the Club . Rapid7 Delivers a Successful IPO . Coinbase Tries To Capitalize on BitCoins . Expect Acquisitions From ServiceNow . Zendesk and Freshdesk in Expansion Mode . Zulily Attempts to Make a Turnaround . Etsy Continues to Fumble . Lufax May be Risky, But Valuations Remain Lofty . Will IBM Acquire FireEye? . Mode Media Takes on Video Streaming . New Relic Moves Deeper into Enterprise . Delivery Hero Gets Multi-Billion Dollar Valuation for Food Delivery . Splunk Beefs Up Cyber Security . Garena Secures Singapore's Entry to the Club . Dianping is Thriving in China with its Local Reviews Business . Box Struggles in its Public Avatar . Coupang Raises the Banner for South Korea . InsideSales.com Bootstraps First, Raises Money Later . Pinterest Eyes E-Commerce . Klarna Takes the Risk out of E-Commerce . VNG Grows While Remaining Focused on Vietnam . Good, Bad and Ugly . Sprinklr Rolls up Social Media Management Software Before IPO . ContextLogic Marries Wish Lists to Vendors . Beepi Disintermediates Used Car Dealerships . Snapchat Experiments With Revenues . Tanium Simplifies Cyber Security . Avant is Revolutionizing Consumer Credit . Adyen is on a Roll . Apttus Ready for IPO . ZScaler Takes Security to the Cloud . Bullhorn is in the Making . Sogou a Unicorn, But Yet to Find its Mojo . Evernote Trying to Recover Lost Ground . Modernizing Medicine Is A Prospect . Instacart Looks Shaky . Mogujie's E-Commerce Pivot Pays Off . Zalando Takes the Lead in European Etail . BlaBlaCar Expands Internationally with Acquisitions . Square Files for IPO Below Last Round of Financing . Secretive Infinidat Makes its Way to the Club . FanDuel Creates a Billion Dollar Company out of Fantasy Sports . Kabbage Latest Unicorn in Slowing Online Lending Sector . Atlassian Now Prepping for a US Listing . Match.com Looking to Court the Stock Market Now . Ele.Me Shows Online-2-Offline Works . Alteryx is a Prospect . Machine Zone Translates Multi-Player Games to Multi-Billion Valuation . ZocDoc Should Be Able To Withstand Public Market Scrutiny . Thumbtack Joins the Ranks . Beibei the Baby of the Club . Online Lender SoFi Puts Off IPO Plans . Warby Parker Joins the Club . DraftKings Looks Worried as Fantasy Sports Come Under Scrutiny . Tujia Offers Vacation Rentals in China . Hortonworks Struggles to Stay in the Club . Atlassian, A Legitimate One, Delivers A Great IPO . Reconsider Your Aspirations . Will Docker Sustain? . Veeva Delivers Strong Fundamentals . OfferUp Still Needs to Figure out Revenue Model . Mozido Delivers Mobile Payment to Non-Banking Customers . SimpliVity a Prospect . WePiao Succeeds in Online Ticketing in China . Uptake Joins the Club . For Magic Leap, Unicorn Status No Longer Virtual . Udacity Leans on Industry Giants for Monetization . ForeScout Does Not Want To Go Public Yet . ShopClues Joins the Club . Age of Learning Monetizing in Educational Apps . Square Post Its IPO . Decolar is the Latin American Entry to the Club . Japan's Mercari Joins the Club . Yello Mobile Acquires its Way into the Club . TutorGroup Enters the Club . Souq.com the Middle East Entry to the Club . WeWork Riding the Sharing Economy Wave . Moderna Therapeutics A Promising, Unproven Bet . GitHub Faces Growing Pains . Africa Internet Group the First African Entry to the Club . Paytm Plans Rapid Expansion . Oscar Plans to Expand Its Network . Razer Leads the Gaming Accessory Market . GuaHao Targets China's Healthcare . AUTO1 Group Plans International Expansion . TransferWise Makes Money Transfer Simpler and Cheaper . Ping An Good Doctor Is Largest Chinese Healthcare Unicorn . MindMaze Channels Virtual Reality into Healing . Driverless Car Startup Zoox Joins The Club . Cylance Uses Machine Learning as Cyber Security Tool . SMS Assist Brings a Lackluster Industry to the Club . Unity Technologies a Strong VR Gaming Bet . Square Eyeing Large Sellers . Airbnb Continues to Soar . Xiaohongshu Leverages Social Commerce to Join the Club . iCarbonX Wants to Create a Digital You . Liepin, China's Homegrown Recruitment Platform . Hike is the Latest Entrant from India . Go-Jek Hails its Way into the Club . Quanergy Rides Into the Club . Aiwujiwu Rides High on Chinese Real Estate Sector . Zeta Interactive Counts on Inorganic Growth . Line Delivers a Successful IPO . Grab from Singapore is the Next Big One . Didi Chuxing Monopolizing Chinese Ride-Sharing Market? . Blippar Bets on Its Visual Browser . Two Years Post the IPO, Globant Continues to Soar . Nutanix Delivers a Strong Performance in the First Week of Listing . Coupa Has a Successful IPO . Online-to-Offline Focus Helps Huimin Enter the Club . Real Estate Platform Compass Joins the Club . LeSports Cashes in on Niche Video Streaming . Flipkart's Valuation Bodes Unsteady Future . Russian Avito Gearing up to go Public . Guazi Leading the Chinese Online Used Car Market . Slack Delays IPO to Next Year . Sprinklr Acquiring to take on Big Brands . Infor Accumulates ERP Providers to Build an Empire . Royole Corporation Flexes its Way into the Club . Rong360.com Joins the Club . Stripe’s Skyrocketing Valuation . Hulu Gears up to Stream Cable . Nutanix Delivers Upbeat Performance, Stock Still Down . Procore Joins the Club . JetSmarter Flies Into the Club . Opendoor Labs Opens the Door to the Club . Neo Technology Takes Databases to the Next Level . Kabam Struggles to Stay Alive . Careem is the Latest Middle East Unicorn . Huochebang is the Uber of Trucks in China . SimpliVity Exits in HPE's Arms . Kendra Scott Shows that Women CAN Build Unicorns . Zhihu Imitates Quora to Build a Valuation Without Revenue Company . Putting Flipkart's Struggles in Perspective . BlackLine Continues to Grow Post IPO . Global Switch Wants to be Leader in Data Centers . AppDynamics Sold Before IPO . MuleSoft Delivers Successful IPO . Alteryx has a Successful IPO . Airbnb is in no Rush to IPO . Actifio Focuses on Profitability, not IPO . In Uptake, Groupon Founder Shows He Has Learnt His Lesson . Will Cisco buy Nutanix? . Zoom Video Communications Enters the Club . C3 IoT Joins the Club . Robinhood Joins the Club . Veeva Systems Executes Systematically . Modernizing Medicine Crosses $100 Million Revenue Threshold . Stripe is in no Rush to List . Cloudera Fails to Keep the Market Happy . Stitch Fix Delivers a Surprisingly Fresh Take on Shopping for Fashion . Bill.com Has Scaled Quietly . Toutiao Snags a Big Round, But Growth and Revenues Remain Tricky . Taboola and Outbrain Exploring a Merger . Looker Counts on Big Data Analytics . Katerra Tackles the Construction Industry with Technology . Peloton Cycles Into the Club . Yello Mobile Delays IPO . Kuaishou to Focus on AI . Garena Files Privately in New Avatar . Clover Health Reaches Milestone Valuation . Careem Focused on MENA . DraftKings Faces Hurdles . Sales AI Startup Afiniti Considering IPO . Ticket Monster To Invest In Groceries . Yext Makes it to the Club and on the Exchange . Rubrik Gears up to go Public . Pinterest Delays its IPO Plans . Valuation Without Revenue Nextdoor Trying to Monetize . Delivery Hero Goes Public Albeit Huge Losses . Newly Public Redfin Wants to be the Amazon of Real Estate . VIPKid is the Newest Kid in the Club . Nutanix Making a Comeback . Fanatics now Eyeing Asia . Valuation for Unity Technologies Keeps Soaring . AvidXchange Eyeing IPO . AppDirect Cashes in on Cloud . Ele.me Consolidates Market, but Profits Elusive . Valuation for WeWork Continues to Soar . CrowdStrike Joins the Club . TransferWise Turns Profitable . Is Cybereason the Next Cyber Security Company to get Acquired? . Yuanfudao, China's First EdTech Unicorn . Coupa Close to 52-Week High . What Are AUTO1's Margins? . Is Houzz's Valuation Justified? . Apttus Eyeing an IPO . Atlassian Hits a New High . Proofpoint Expands Product Offerings to Gain Market Share . FireEye Struggling To Keep Up . Forescout Finally Lists . Indian Small Town Marketplace ShopClues Looks Shaky . Profitable Qualys Hits a New High . Microvast Charges into the Club . HelloFresh Lists Successfully . Zscaler Getting Ready for IPO . New Relic at a 52-Week High . Rong360 Goes Public on NYSE as Jianpu . 23andMe in High Gear . Kabbage Mulling Over an IPO . Reddit is in No Rush to Go Public . Grab Becomes the Most Valuable Startup in Southeast Asia . Talend Going Strong Since Listing . Stitch Fix Is Worth Celebrating . No Stable Revenue Model in Sight, but Quora Usage Still Growing Rapidly . Splunk Outpaces Market Expectations . Razer IPO - Yet Another Story of a Non-Profit Stock . Roku Streams a Successful IPO, for Now . CarGurus Bootstraps its Way to an IPO . Competition Heats up for Slack . SoFi Delays IPO Plans . Improbable Joins the Club . Why Cloudera Continues to Stumble . Can MongoDB Sustain Unicorn Status? . Can Okta Sustain its Valuation? . Is Stitch Fix the Next Blue Apron? . Atlassian is Doing Everything Right, But is it Too Expensive? . How Does Domo's Valuation Compare with Tableau's? . Is the Duopoly Keeping AppNexus from Listing? . Why Doesn't Adyen Want to Go Public? . Will Zuora be able to Compete with Oracle? . Will DocuSign Cave in to Potential Buyers? . Should Xiaomi List at a $50B+ IPO Valuation? . What is Marketo's Roll-up Strategy? . Will Apptio Expand Internationally? . What is Anaplan's Product Strategy? . Will Apttus Take the Plunge? . How Will Nutanix Control Dell? . Does New Relic Plan to Consolidate the APM Market? . What is Coupa's Next Acquisition? . Will Medallia Help Consolidate? . How Will Ellie Mae Handle Looming Mortgage Worries? . Will Zoom Go Public or Get Acquired? . Is GoodData Ready to Go Public? . Will a Sales Strategy Change Help Cloudera? . Can Splunk Sustain its Price Point? . Can Fortinet Get to $10 Billion in Revenue? . What Other MarTech Startups Will HubSpot Acquire Next? . What is Okta's Inorganic Growth Narrative? . What Will Atlassian Acquire Next? . Will C3 IoT Look to Acquire a few Indian Startups? . Is Microsoft Planning to Buy InsideSales? . BlackLine Striking Powerful Partnerships . How Will GitHub Reach Its Billion Dollar Revenue Target? . Fitbit Struggles to Stay Relevant . Squarespace is Willing to Wait Patiently For an IPO . Adyen Ready for an IPO . Pinterest Revenues Jump 58% . Airbnb Delays IPO Plans, Again . Box Continues to Grow, But Profits Still Absent . Zscaler is the Top US Tech IPO of 2018 . How Will Dropbox Position in Collaboration? . Smartsheet Goes Public but Profits Appear Distant . Everbridge Continues to Soar . Pluralsight Goes Public . Cornerstone OnDemand Faces Intense Competition . SurveyMonkey Finally Files to Go Public . Is Affirm Overvalued? . Five9 Predicts its Acquisition in the Future . DocuSign Impressive Post IPO . AppNexus Found An Exit . Avalara Delivers a Strong IPO . MongoDB Post IPO Review . Nutanix Focuses on Software . What Should RingCentral Acquire? . Okta Delivering Decisive Growth Post IPO . Is Palantir Losing Valuation? . New Relic's Enterprise Focus Pays Off . Will Coupa Remain Independent? . Elastic Files to go Public . Atlassian Teams up with Slack to go Lean . Discord Going Strong . Is Stripe Ready to List? . BlackLine Looks at International Markets . Yitu Cashes in on China's Growing Surveillance Market . Nubank is Latest LatAm Unicorn . Revolut Looks to Expand in the US . Circle Soars With New Products . NuCom Banking on Omni-Channel . Babytree Prepares to Go Public . Talend Strengthens Ties with Microsoft . Twilio Shatters all Market Expectations . HubSpot on a Growth Trajectory . Rapid7 to Focus on Profits in Fiscal 2019 . Cloudflare Targets Enterprises . Byju's is India's First EdTech Unicorn . FireEye Targets a Profitable Year . Sonos Stock Does Not Like the Sound of its Earnings . DoorDash Enters the Club Mired in Controversy . Swiggy Enters the Club with Massive Funding . Should Oracle Buy MongoDB? . Okta Faces Tougher Competition from Cisco . Upwork Finally Goes Public . Profitable PolicyBazaar Focuses on Health, Delays IPO . Smartsheet Delivers High Growth, But No Profits . Grab Gives Uber a Ride out of Southeast Asia . Gusto Gets Fresh Round of Funding for Growth . How will Paytm Navigate Rising Competition? . DocuSign Growing Through Acquisitions . WalkMe's Enterprise Focus Pays Off . Indian B2B Marketplace Udaan Flies In . Atlassian Prepares to Take on ServiceNow . Dataminr Joins the Club . Rapid7 Acquires tCell for Growth . Palo Alto Networks Continues to Consolidate in Cyber Security . RingCentral Counting on Acquisitions and AI Upgrades . Cohesity is on the Rise . MediaMath Joins the Club . Luckin Coffee Getting Hot in China . India's OYO Rooms Checks In . Automation Anywhere Bootstrapped First and Raised Money Later . OutSystems Finally Joins the Club . Gett Driving to Profits . Tradeshift Gathers Funds To go Public . Celonis Bootstrapped First, Raised Money Later . About You Becomes the First Unicorn from Hamburg . Bitmain Lists to Go Public . Lime Rides its way into the Club . Ola at Crossroads . Bird Delivers Meteoric Growth . Will Hello TransTech Survive in the Chinese Bike Sharing Market? . Will Atlas Help Keep Competitors Away from MongoDB? . Taxify Makes it Difficult for Uber . Competition for DocuSign Heating Up . Proofpoint Steadily Building Through Acquisitions . Spotify Eyeing Podcasts . Pluralsight to Focus on Enterprise . Apptio Decides to Go Back to Being Privately Held . SurveyMonkey Should Do A Platform Strategy . Qualys Acquires 1Mby1M Company Adya . Xero Grows Through International Acquisitions . Will Ping Identity List or Be Acquired? . HubSpot Acquired 9 Smaller Start-ups . Should Box Acquire Canva? . Segment.io Joins the Club, What Next?