By Nate Wolf
Although Fortinet's better-than-expected financial results had plenty of positives -- a record operating margin and a 14% jump in revenue from last year -- investors weren't impressed.
The cybersecurity company was the biggest decliner in the S&P 500 Thursday, with its shares tumbling 7.9% to $98.27.
On Wednesday, Fortinet, which sells security services to businesses, posted solid numbers for the first three months of the year. Adjusted earnings of 58 cents a share beat analysts' consensus estimate of 53 cents, and the company's operating margin of 34% was a first-quarter record. Management also maintained its guidance for the rest of the year.
"All in, we thought it was a pretty good report," analysts from BTIG wrote in a note after the earnings release.
Investors appear to be worrying there might be issues under the hood. The company posted lower-than-expected services revenue, for instance, and management said the weakening U.S. dollar may pose headwinds.
Fortinet's mixed messaging for the remainder of 2025, however, likely is the primary reason for the stock's steep drop. In a research note Thursday, Evercore ISI analysts said management's decision to issue more conservative second-quarter guidance -- while leaving its full-year outlook intact -- raised more questions than answers.
"The messaging unfortunately leaves the door open for future downward revisions if macro[economic] conditions worsen," they wrote.
Both the Evercore team and Oppenheimer analysts each pointed to hesitancy from Fortinet's reshuffled sales team to issue a more optimistic forecast. The company's former chief revenue officer retired in 2024.
On a conference call following the earnings release, Chief Accounting Officer Christiane Ohlgart said the sales team's conservative approach limited senior leadership's ability to strengthen its guidance.
"We sensed a degree of increased uncertainty being communicated," the Evercore ISI analysts wrote.
Even after today's slide, Fortinet stock is up 69% over the last 12 months, compared with 9.4% for the S&P 500 index.
Write to Nate Wolf at nate.wolf@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 08, 2025 13:41 ET (17:41 GMT)
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