Will the cybersecurity provider Fortinet break out of the sideways trend?
Cybersecurity solutions provider Fortinet Inc. (FTNT) has a large audience and an impressive growth story. Fortinet shares have a sideways trend, with a decline of about 15% beginning of the year to $61 at auction on July 25. Does Fortinet have the potential for a new growth cycle? Fortinet is one of the leaders in the data protection industry. Many organizations use its solutions. For example, they are prevalent in retail.
The advantage of Fortinet is the availability of cyber protection tools for distributed software-defined SD-WAN networks. Such networks have long gone beyond specialized solutions and where it is necessary to manage large volumes of traffic and an extensive IT infrastructure. The demand for SD-WAN solutions will increase in the next decade, which is good news for Fortinet. However, following a promising trend has made Fortinet dependent on data center update cycles.
There is no record demand for the modernization of corporate and other extensive IT infrastructure, thanks to which Fortinet increased revenue by 54% year-on-year in the first quarter of 2022. Such a rise will not be long-term. Additional risks for Fortinet are dependence on distributors and receiving most of the revenue outside the United States, which may lead to a drop in profits due to the rise in the dollar. On the other hand, the number of cyber-attacks and threats is also overgrowing, forcing organizations to spend more money on cyber defense.
A feature of the Fortinet strategy remains the preservation of high cash flow and the continuous expansion of the ecosystem by adding small-scale but valuable and relevant to the broadest possible audience. In addition, Fortinet is taking steps to enter the segment of solutions for individual users and small businesses. There is still little use of advanced cyber defense technologies in this category, and Fortinet is trying to take a large share of this promising market.
Focusing on updating its ecosystem, Fortinet does not forget about strategic research. In partnership with Singapore’s QEP program, Fortinet is working on data protection services for quantum computing, which will replace traditional ones in the future and make many modern cyber defense tools useless. Thus, Fortinet maintains the stability of the business and long-term growth. However, it may now be at the point of temporary weakening of financial indicators due to a possible cycle change in the IT market.
