Fortinet (FTNT)

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Much of the technology foundation for Fortinet's current products still consist of the ASIC-accelerated performance that Ken Xi developed back at the dawn of the network security business. Although Fortinet has an integrated suite of solutions whose products probably match in aggregate everything that is done by the Palo Alto platform, the key differentiator is that FortiGate, the company's flagship solution, is not quite yet a platform into which a user can seamlessly plug in extended capabilities.

Investing In The Network Security Space: Palo Alto, Fortinet And Their Less Enabled Competitors - Fortinet, Inc. (NASDAQ:FTNT) | Seeking Alpha

Similar to Palo Alto, this company uses a hybrid SaaS model. Therefore, at least for this writer, more critical metrics to look at are billings growth and deferred revenue growth.

Investing In The Network Security Space: Palo Alto, Fortinet And Their Less Enabled Competitors - Fortinet, Inc. (NASDAQ:FTNT) | Seeking Alpha

There are some investors who are far more concerned about GAAP margins than this writer. I think the operating cash flow margin difference, which is weighted in Palo Alto's favor, is far more significant. Palo Alto deferred revenues and bookings are growing faster than Fortinet's and the anomaly by which Palo Alto records a full sales commission on bookings accounts for some but not all of the difference in GAAP operating margins.

Investing In The Network Security Space: Palo Alto, Fortinet And Their Less Enabled Competitors - Fortinet, Inc. (NASDAQ:FTNT) | Seeking Alpha

Fortinet's products were originally aimed at the mid-market and its revenue mix continues to be far more weighted to the mid-market when compared to Palo Alto.

Investing In The Network Security Space: Palo Alto, Fortinet And Their Less Enabled Competitors - Fortinet, Inc. (NASDAQ:FTNT) | Seeking Alpha

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This company is a subscription revenue company. I have written several times in the past that the appropriate way of assessing the health of companies that sell their products on a subscription revenue basis is to look at their bookings and weight that performance far more than revenues..

Fortinet: Compelling Valuation Based On Some Broad Misconceptions - Fortinet, Inc. (NASDAQ:FTNT) | Seeking Alpha

Jan 4, 2019:

Goldman Sachs analyst Gabriela Borges downgraded Fortinet from Buy to Sell and lowered her price target from $95 to $59. The Thesis According to Borges, after a 7-percent upward revision to 2019 Wall Street revenue estimates, a 41-percent upward revision to EPS estimates and a 50-percent gain in share price, the bullish catalysts are likely all played out for Fortinet stock in the near term. “An elevated multiple relative to history and peers, coupled with the likelihood of decelerating product revenue over the next two years, suggests that at best, upside is priced in, and at worst, any volatility in estimates may also drive multiple compression,” Borges wrote in a note. Borges said the current firewall refresh cycle may be peaking, and Fortinet stock has a history of experiencing earnings multiple contraction during periods of product revenue growth declines.

Goldman Sachs Downgrades Fortinet To Sell