Financial Performance Overview

Fortinet, a leading cybersecurity company, has reported strong financial results for the year 2024. The company’s total revenue grew by 12% to $5.96 billion, driven by a 20% increase in service revenue, which now makes up 68% of the total revenue. Product revenue remained relatively flat, decreasing by 1% compared to the previous year.

The company’s gross margin improved significantly, increasing by 3.9 percentage points to 80.6%. This was primarily due to a shift in the revenue mix towards higher-margin service revenue, as well as improvements in both product and service gross margins. Product gross margin increased by 5.4 percentage points, while service gross margin increased by 1.5 percentage points.

Operating expenses increased by 6% to $2.99 billion, with the largest increase in research and development (17%) as the company continued to invest in developing new products and enhancing its existing offerings. Sales and marketing expenses grew by 2%, while general and administrative expenses increased by 13%.

As a result of the strong revenue growth and improved profitability, Fortinet’s operating income increased by 45% to $1.80 billion, and the operating margin expanded by 6.9 percentage points to 30.3%. The company’s net income attributable to Fortinet, Inc. also grew significantly, reaching $1.75 billion, a 52% increase compared to the previous year.

Geographical Diversification

Fortinet’s revenue continues to be diversified globally, with the Americas region contributing 41% of total revenue, the EMEA (Europe, Middle East, and Africa) region contributing 40%, and the APAC (Asia-Pacific) region contributing 19%. All three regions experienced growth, with EMEA seeing the largest increase at 16%, followed by the Americas at 12% and APAC at 6%.

Deferred Revenue and Billings

Deferred revenue, which represents the unrecognized portion of service revenue from subscriptions and support contracts, grew by 11% to $6.36 billion as of December 31, 2024. Short-term deferred revenue, which is expected to be recognized as revenue within the next 12 months, increased by 15% to $3.28 billion.

Billings, which represent the total amount of revenue recognized plus the change in deferred revenue, grew by 2% to $6.53 billion in 2024. The company expects service revenue growth rates to continue to slow down in 2025 due to slowing short-term deferred revenue growth over the past several quarters, partially offset by increases in SaaS (Software-as-a-Service) revenue.

Cash Flow and Capital Allocation

Fortinet’s cash flow from operating activities increased by 17% to $2.26 billion in 2024. The company ended the year with $4.07 billion in cash, cash equivalents, short-term and long-term investments, and marketable equity securities, an increase of 67% from the previous year.

The company continues to return capital to shareholders through its share repurchase program. In 2024, Fortinet repurchased less than 0.1 million shares of common stock for an aggregate purchase price of $0.6 million. As of December 31, 2024, approximately $2.03 billion remained available for future share repurchases under the program.

Fortinet also expects to continue investing in its infrastructure, including data centers, points of presence, office, and warehouse capacity, to support the growth and expansion of its services. The company estimates capital expenditures for 2025 to be between $380.0 million and $430.0 million.

Acquisitions and Partnerships

In 2024, Fortinet completed two strategic acquisitions: Lacework, a privately held data-driven cloud security company, and Next DLP, a privately held insider risk and data loss prevention (DLP) company. From August to December 2024, revenue from these two acquired companies contributed $33.5 million, or 0.6% of Fortinet’s total revenue in 2024.

The company continues to focus on expanding its partnerships and integrating its solutions with cloud service providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud, to provide customers with a comprehensive and flexible cloud security offering.

Competitive Advantages and Product Innovations

Fortinet’s competitive differentiation lies in its core technologies, which provide performance, security, flexibility, and integration across diverse environments. Key innovations include:

1. FortiOS: The company’s networking and security operating system that enables the convergence of security and networking, providing customers with unified management and analytics for comprehensive network visibility and control.

2. FortiASIC: Fortinet’s proprietary ASIC-based Security Processing Units (SPUs) that increase the speed, scale, efficiency, and value of its solutions, improving user experience and reducing footprint and power requirements.

3. FortiCloud: Fortinet’s organically built global cloud infrastructure, powered by FortiStack, which provides customers with global reach, flexible connectivity, and cost savings.

4. FortiAI: The company’s AI innovations, including generative AI, big data AI for threat intelligence, network operations AI for self-healing networks and automated network orchestration, and AI for language model leakage protection.

5. FortiEndpoint: A solution that converges secure connectivity, endpoint protection, and advanced capabilities like endpoint detection and response and extended detection and response (XDR) into a single agent.

6. OT Security: Fortinet’s platform that extends its Security Fabric capabilities to operational technology (OT) networks, helping to alleviate security risks across the organization.

These competitive differentiators allow Fortinet to provide customers with an integrated, AI-driven cybersecurity platform across three solution pillars: Secure Networking, Unified Secure Access Service Edge (SASE), and AI-Driven Security Operations.

Outlook and Challenges

Fortinet expects to continue its growth trajectory, with opportunities in its unified SASE and SecOps offerings, as well as the year-over-year increase in current deferred revenue. However, the company anticipates that service revenue growth rates will slow down in 2025 due to slowing short-term deferred revenue growth over the past several quarters.

The company’s operating margin is expected to decrease in 2025 compared to 2024 as it expands its workforce organically and through acquisitions, increases product development investments, and expands its data center footprint and cloud hosting capacity to support business growth.

Fortinet also faces potential challenges from macroeconomic and geopolitical developments, such as worsening economic conditions, including inflation, changing interest rates, tariffs and other trade disruptions, and the impact of the war in Ukraine or tensions between China and Taiwan. These factors could result in decreased sales productivity and growth, and adversely affect the company’s results of operations and financial performance.

Overall, Fortinet has demonstrated strong financial performance in 2024, with significant growth in revenue, profitability, and cash flow. The company’s focus on innovation, strategic acquisitions, and global expansion positions it well to continue its leadership in the cybersecurity market, despite the potential challenges it may face in the coming year.