Fortinet Execs Confident In Investment Strategy For Growth, Despite Plummeting Stock Price After Q3 Earnings

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Despite a plummeting stock price after its third-quarter earnings call Thursday, Fortinet executives said they are confident their investment strategy and growth numbers position it to continue winning vs. its competitors.

Billings for the quarter that ended Sept. 30 came in at $299.1 million, up 41 percent year over year, which is the highest growth rate the company has achieved as a public company. The billings growth was seen across all product segments, executives said, and was driven by an "ongoing healthy security market."

Revenue also was up significantly for the Sunnyvale, Calif., security vendor, rising 35 percent year over year to $260.1 million. That is the highest revenue growth rate for the company in the last three years and includes contributions from its Meru Networks acquisition, which closed July 8. Profit was $8.17 million for the quarter, up 101 percent over the same period last year.

[Related: Fortinet Mounts 'Aggressive' Marketing Push Against Security Competitors]

Founder and CEO Ken Xie said the growth signifies that the company is on the right path to success, particularly over its competitors in the market, which include Palo Alto Network and others.

"Our technology advantage is very strong and our growth strategy is working," Xie said.

One place in particular that Fortinet saw wins was in large deals and its enterprise business, Xie said. Deals more than $1 million grew 55 percent and deals more than $100,000 grew 59 percent, he said. That includes big wins over the competition, CFO Andrew Del Matto said, with a competitive win with a large bank for firewall products, a North American bank replacing its legacy firewall from a competitor with Fortinet solutions in three large data centers, and an expansion with a large international bank for high-end data center appliances and FortiGate solutions.

"We are not only winning customers from the competition, but we are keeping them," Del Matto said.  

However, despite the growth, Fortinet stock plummeted more than 13 percent after the earnings report to a low of $37.50. Investors on the call said they were worried about the company's operating margins, which were lowered to a forecast of 16 percent vs. 19.3 percent, and wanted more transparency around the level of investment going forward. Investors also expressed concern over lower-than-expected product growth, which came in at 4.3 percent compared with an expected 7.8 percent.

Del Matto defended the operating margins, saying that the company sees significant opportunity ahead and is investing to capitalize on it. That includes particular investments over the next quarter in the Asia-Pacific and EMEA regions, in the midsize enterprise market, and internally in marketing expansion, although he declined to say how much those investments might amount to.

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