Palo Alto Networks Stock Price Regains Ground, Fortinet Drops Again

Fortinet shares continue to fall after its weaker-than-expected financial report.

Shares in Palo Alto Networks are climbing Tuesday, reversing some of the losses from recent days.

But Fortinet’s stock price is continuing to decline in the wake of Thursday’s weaker-than-expected financial report.

[Related: Okta, Fortinet See Further Stock Price Declines]

Fortinet’s third-quarter results have been blamed for the stock price drop at rival Palo Alto Networks on Friday and again on Monday. Investors appeared to have fresh concerns about Palo Alto Networks’ business due to its close competition with the network security vendor.

On Tuesday, however, investors seemed to regain confidence in Palo Alto Networkks, which has yet to report its latest quarterly results.

Shares in Palo Alto Networks, which competes with Fortinet in all of its major categories, were up 2.4 percent to $242.74 Tuesday morning as of this writing.

Palo Alto Networks’ stock price is still below its closing price of $250.36 Thursday, just prior to Fortinet’s quarterly report.

Fortinet’s stock price, on the other hand, is down 1.7 percent to $49.23 as of this writing Tuesday morning.

Stock indices including the Nasdaq Composite and S&P 500 were up Tuesday morning.

Fortinet’s stock price is now 14.5 percent below its closing price of $57.59 Thursday.

The release Thursday of the company’s results for the third quarter ended Sept. 30 showed a 16 percent gain in overall revenue from a year earlier. However, Fortinet also saw a drop in firewall sales, which led the company’s third-quarter revenue to fall short of the analyst consensus estimate.

Fortinet’s product revenue for the third quarter declined 0.6 percent year over year to $465.9 million—marking the company’s first year-over-year decline in firewall sales since it went public in 2009. The company is encountering a “slowdown in secure networking market growth,” co-founder, Chairman and CEO Ken Xie said during Fortinet’s quarterly call with analysts Thursday.

The company’s revenue outlook for the fourth quarter also came in below Wall Street expectations.

Amid the report Thursday, Fortinet said it will be shifting more of its focus to faster-growing areas, such as SASE (secure access service edge) and security operations tools. SASE now represents 20 percent of Fortinet’s business while SecOps tools now make up 10 percent.

In Fortinet’s third-quarter results, service revenue grew nearly 28 percent year over year to reach $868.7 million, the company reported.

Fortinet is well-positioned to capitalize on major near-term market opportunities, CFO Keith Jensen said during the call, through “shifting our R&D and go-to-market investments to the faster-growing SASE and SecOps markets.”

What Fortinet has not done, however, is cut back on overall staff.

While the company made cuts this summer to employees in roles related to sales, channel and business development, according to LinkedIn posts by affected employees, Fortinet’s overall head count has been climbing. In a quarterly filing with the U.S. Securities and Exchange Commission Tuesday, Fortinet disclosed that its total head count was 13,618 as of the end of September, up 8 percent from the end of 2022.