Fortinet Q4 and FY 2023 Update

Buy List stock Fortinet (FTNT) recently reported its Q4 and fiscal year 2022 results.

Results look strong. Revenue was up 33% for the quarter and 32% for the year. Product revenue was particularly strong, up 43%/42% respectively, and representing about 40% of total sales. Product development is an area where Fortinet excels over its many competitors. The firm develops custom "FortiSecurity" hardware processors that support an amazing 17-32x bandwidth over competing solutions that use "off-the-shelf" CPUs. Combined with the firm's custom operating system, this creates an integrated platform that is much easier to deploy and manage, and supports larger traffic volumes, than a bunch of cobbled together competitor solutions. Fortinet can be thought of as the "Apple of Security" - charging more for a better, more integrated set of products.

Forward metrics look solid as well. Billings were $1.7 billion for the quarter, up 32% year-over-year. Much hand wringing was done over delayed enterprise spending at the tail end of 2022, but it seems like security remains a priority for investment.

For 2023, the company is forecasting 22% revenue growth and 21% billings growth, which is in line with my modeling. More notably, management confirmed its prior 2025 fiscal targets of $8 billion in revenue, $10 billion in billings, and free cash flow margins in "the high 30% range" - all slightly above the model. After incorporating these targets, time value of money changes, and a few other small tweaks, I'm upping Fortinet's fair value estimate from $91 to $106. Currently trading at a stock price of $60, this continues to look like an excellent buying opportunity at present.