Founded back in 2000 by Ken Xie and Michael Xie, and headquartered in Sunnyvale, California, Fortinet (NASDAQ: FTNT) has grown to become one of the largest automated cybersecurity solutions providers globally.

DIVERSIFIED OFFERING

Fortinet is renowned for its integrated and automated cybersecurity solutions. It has over 20 different products, which fall into 13 different categories such as:

  • FortiGate: a network security platform with provisions such as virtual private networks (VPNs), switches, firewalls and firewall throughput, among others
  • FortiManager: this is a centralized management platform for clients
  • FortiAnalyzer: a centralized logging and reporting solution
  • FortiSIEM: a unified event correlation and risk management solution
  • FortiAuthenticator: a user identity management server
  • FortiAP: a wireless access point
  • FortiSwitch: a secured access switch
  • FortiNAC: a network access control solution
  • FortiSandbox: an advanced threat prevention system
  • FortiClient: an advanced endpoint protection
  • FortiMail: a messaging security server
  • FortiWeb: a web application firewall

Some of the other products that Fortinet offers include FortiAI, a virtual security analysis tool, FortiVoice for secure VoIP communications and FortiProxy, a secure web gateway, among others.

“Our rapidly-growing market share and customer base around the world and across different verticals highlights the need for Fortinet’s security-driven networking approach to SD-WAN. Customers continue to recognize the importance of integrated security and SD-WAN as they select Fortinet’s Secure SD-WAN solution to reduce complexity and enhance their organization’s security posture.” John Maddison, EVP of Products and CMO at Fortinet

FIERCE COMPETITION

Cisco and Palo Alto Network are behemoths in the cybersecurity space. In more recent years, competition has also emerged from fast-growing cybersecurity players such as CrowdStrike, Zscaler and FireEye.

  • Cisco is posting total revenue of $49.3 billion in 2020 compared to Fortinet’s $2.9 billion, with a workforce of 77,500 compared to Fortinet’s 8,200. Recently, Cisco has been putting more effort to grow its business. In 2020, it acquired Duo Security for $2.35 billion to improve its cloud security portfolio
  • Palo Alto is a next-gen security company that also acquired container security company, Twistlock, and the serverless security firm, PureSec. Palo Alto posted total revenue of about $3.41 billion, up from $2.9 billion in 2020

Yet, customers have lauded Fortinet for its sandbox features, low total cost of ownership and traffic shaping capabilities.

  • Sandbox Feature: Fortinet has been lauded for its sandboxing feature in its FortiGate product offering. With its network and cloud-based sandboxing options, customers enjoy an additional layer of protection that not many other alternatives offer in the market
  • Traffic Shaping: the same applies to Fortinet’s traffic shaping, a function that helps bring order and prioritization to network systems that deal with a growing volume of email and traffic
  • Cost: It costs $2 TCO per protected Mbps compared to Palo Alto’s $7 TCO

Other aspects that customers love about Fortinet include its intuitive user interface, the efficiency of its firewall, along with its multi-factor authentication.

THE MARKET

In 2020, the global cybersecurity market was valued at $ 167.13 billion. It is estimated that between 2021 and 2028, it will register a CAGR of 10.9%

  • This growth will be attributed to the growing sophistication of cyberattacks along with the growing frequency of cybercrimes and the increasing number of internet users
  • Asia-Pacific is the fastest-growing market owing to the high cybercrime incidents
  • India, for instance, is ranked fifth in overall DNS hijacks. It accounts for 37% of all global breaches. In 2019 alone, the use of malicious PowerScripts in the country increased by 1,000% from the previous year, while ransomware infections grew by 12%

The global cloud security market is projected to grow from $ 34.5 billion in 2020 to $ 68.5 billion in 2025

  • Representing a CAGR of 14.7%, this growth will be attributed to the growing sophistication of cyber-attacks on cloud computing systems, coupled with the growing need for compliance with various upcoming regulations
  • The Software as a Service (SaaS) segment is projected to hold a significant market size during this forecast period. This will be attributed to the growing advanced threats and malware attacks on SaaS-based cloud applications given the profitability of data theft and the investments that cybercriminals are making to beat the existing security systems
  • In 2020, this sector experienced growth due to the Covid-19 pandemic and growth in internet usage for remote working

FOUNDER-LED MANAGEMENT

Fortinet is led by Ken Xie, the Founder, Chief Executive Officer and Chairman of the Board of Directors. He oversees the company’s operations and has grown Fortinet to become one of the top cybersecurity companies in the world.

Ken Xie

  • Ken Xie is the CEO and Chairman of the Board of Directors, a position he has held since founding the company back in 2000
  • Previously founded NetScreen Technologies, which developed the industry’s first ASIC, a dedicated hardware systems manufacturer for high-performance firewalls and VPNs before being acquired by Juniper for $ 4B
  • Xie holds a Master’s Degree in Electrical Engineering from Stanford University, Bachelor of Science and Master’s degree in Electronic Engineering from Tsinghua University

Michael Xie

  • Michael Xie is also the founder of Fortinet and serves as the President and Chief Technology Officer (CTO) at the company
  • Previously served as a software architect at NetScreen Technologies and a software designer at Milkyway Networks Corporation
  • Holds a Master’s Degree in Electrical and Computer Engineering from the University of Manitoba, as well as a Master’s Degree in Automobile Engineering from Tsinghua University

Keith Jensen

  • Chief Financial Officer (CFO) for Fortinet, a position that he has held since May 2018
  • Previously served as the company’s Chief Accounting Officer and Finance and Corporate Controller within the company. Has also served in various positions at DataDirect Networks Inc, including Chief Administrative Officer and Chief Accounting Officer. Jensen has also worked in other organizations, including Sybase Inc. and Dorado Network Systems Corporation
  • Holds a Bachelor of Science degree in Business from California State University, Sacramento

STAY CAUTIOUS

Government Cyber Attack

On May 2021, the FBI issued a flash alert following a cyber-attack on a local government office. Further details revealed that the attack exploited a vulnerability within Fortinet. In an official statement, the FBI noted that by breaking into systems through Fortinet vulnerabilities, cybercriminals or nation-states could “conduct data exfiltration, data encryption, or other malicious activity.”

Data Leak

Back in late 2020, a hacker published over 50,000 credentials stolen from vulnerable Fortinet SSL VPNs. The data leak exposed user details, including their usernames, passwords and unmasked IPs. Some of the affected parties included telecoms, organizations, banks and government agencies.

Lawsuit

In 2019, Fortinet agreed to an out-of-court settlement worth $545,000. It was accused of supplying mislabeled goods manufactured by countries including China and falsely representing that the goods complied with the United States Trade Agreements Act (TAA).

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Founded back in 2000 by Ken Xie and Michael Xie, and headquartered in Sunnyvale, California, Fortinet (NASDAQ: FTNT) has grown to become one of the largest automated cybersecurity solutions providers globally
  2. Fortinet is renowned for its integrated and automated cybersecurity solutions. It has over 20 different products, which fall into 13 different categories
  3. Cisco and Palo Alto Network are behemoths in the cybersecurity space. In more recent years, competition has also emerged from fast-growing cybersecurity players such as CrowdStrike, Zscaler and FireEye
  4. Yet, customers have lauded Fortinet for its sandbox features, low total cost of ownership and traffic shaping capabilities
  5. In 2020, the global cybersecurity market was valued at $ 167.13 billion. It is estimated that between 2021 and 2028, it will register a CAGR of 10.9%
  6. This growth will be attributed to the growing sophistication of cyberattacks along with the growing frequency of cybercrimes
  7. Fortinet is led by Ken Xie, the Founder, Chief Executive Officer and Chairman of the Board of Directors. He oversees the company’s operations

FINANCIAL CHECK

  • Fortinet posted total revenue of $710.3 million for the first quarter of 2021, a 23% growth from the same quarter of the 2020 fiscal year
  • Product revenue stood at $240.7 million for this first quarter, a 25.2% growth from the same period in 2020
  • Service revenue totaled $469.6 million for the first quarter of 2021, a 21.8% during the same period in 2020
  • GAAP operating income was $121.6 million for this first quarter, up from $116.7 million for the same period in 2021, representing a GAAP operating margin of 17.1%
  • Non-GAAP net income totaled $135.6 million for this first quarter, up from $105.1 million for the same period in the 2020 fiscal year
  • For the entire 2020 fiscal year, Fortinet posted total revenue of $748 million, a 21% year-over-year growth from the previous year
  • GAAP operating margin stood at 22.6% for the entire 2020 fiscal year, a growth of 280 basis points year-over-year
  • Product revenue was $288.4 million, up 21% year-over-year for the 2020 fiscal year
  • Service revenue totaled $459.6 million for the 2020 financial year, a 21% year-over-year growth from the previous year

THE BOTTOM LINE

The Good

  • The rising number of attacks and the growing complexity of these is providing the organic market growth Fortinet needs
  • The company is fairly priced and has a strong position in legacy solutions and is now venturing into cybersecurity software

The Bad

  • As happened to SolarWinds, Fortinet may become the target of hackers, which may negatively affect the stock price

THE STAKE

We have a position in Fortinet (approx 1.2% of total). Fortinet is a leading cybersecurity player, growing at a steady pace and relatively conservatively valued

  • We will increase if it manages to sustain its growth by consolidating its position in cloud security
  • We will cut if competitors eat away Fortinet's market share and if the company fails to innovate in cloud computing

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by RoonZ on Unsplash.