The cybersecurity company beat on revenue and earnings, grew product sales 37% and added $1.2 billion to its buyback. Its gross margin slipped to 79.6% from 81.6% a year earlier, below the 80.1% analysts expected.
By most of the usual measures, Fortinet had a good quarter. By one measure it fell short, and the stock was indicated down by a quarter.
The cybersecurity company reported third-quarter revenue of $2.08 billion, up 20% and above the $2.06 billion analysts expected. Adjusted earnings were 91 cents a share, against an estimate of 86 cents. Product revenue rose 37% to $765 million and billings rose 29% to $2.34 billion. The GAAP operating margin was 34% and the adjusted margin 38%. Free cash flow was $865 million.
Fortinet's Xie said the results allowed the company "to raise our 2026 billings guidance for the third time this year."
The guidance
Fortinet now expects 2026 revenue of $8.125 billion to $8.215 billion, billings of $9.568 billion to $9.718 billion and adjusted earnings of $3.54 to $3.58 a share. For the fourth quarter it expects adjusted earnings of 93 to 95 cents and an adjusted gross margin of 78% to 80%. It added $1.2 billion to its buyback authorization, leaving $2 billion available.
The margin
The adjusted gross margin was 79.6%, down from 81.6% a year earlier and below the 80.1% analysts polled by LSEG expected. The fourth-quarter range, with a midpoint of 79%, suggests no recovery this quarter.
Mix may be part of the answer. Product revenue grew almost twice as fast as total revenue, and a shift in the balance between products and services can move the blended margin.
The reaction
Fortinet closed Wednesday at $174.08, down 5.9% before the report, as other security stocks also fell, with Palo Alto Networks, Zscaler and Cloudflare closing down 1.7% to 2.8%. In extended trading it was indicated near $130.40 early Thursday, down about 25%.
Several explanations are circulating: the gross margin, the pace of growth in particular segments, and valuation. Of 44 analysts covering the stock, 30 rate it hold or sell, and Arete downgraded it.
Beat and raise, or a margin warning?
The bull case: revenue, earnings and billings all beat, guidance rose again, product demand is strong and a larger buyback is ready to absorb the selling.
The bear case: margins are drifting lower and are guided lower again, most analysts were already cautious on valuation, and a security sector that fell before the report suggests investors are rotating away from the group.
What to watch
The gross margin trend in the fourth quarter, the mix between product and service revenue, the pace of buybacks at the lower price, and results from other cybersecurity companies.