Fortinet Shares Down 10% Despite Reporting Strong Q3 Financials

"Fortinet (NASDAQ: FTNT) delivered a commanding third quarter, beating earnings expectations by 17.5% while posting record operating margins. The company reported $0.74 in adjusted EPS against a $0.63 estimate, with revenue of $1.72 billion topping the $1.70 billion consensus. The stock was up modestly in after-hours trading before falling more than 10%. The broader market reaction will likely hinge on whether management's forward guidance can sustain this momentum."

"The real story here is profitability. Fortinet posted a record 32% GAAP operating margin, up substantially from prior quarters, while non-GAAP operating margin hit 37%. Operating income climbed 16.2% year over year to $547.3 million. This margin expansion reflects both strong revenue leverage and disciplined cost management as the company scales its platform. Product revenue, the highest-margin segment, surged 18% year over year to $559.3 million."

"One metric deserves scrutiny: net income declined 12.2% year over year to $473.9 million, despite operating income growing 16.2%. This gap typically signals higher tax expenses, interest costs, or other non-operating charges. Capital expenditures also surged 141.6% year over year to $87.7 million, suggesting management is investing heavily in infrastructure to support future growth. That's worth monitoring in coming quarters to ensure capex intensity doesn't erode cash generation."

Fortinet reported adjusted EPS of $0.74 versus a $0.63 estimate and revenue of $1.72 billion versus a $1.70 billion consensus. GAAP operating margin reached a record 32% and non-GAAP operating margin hit 37%, with operating income up 16.2% year over year to $547.3 million. Product revenue increased 18% to $559.3 million, outpacing overall revenue growth of 14% and lifting gross profit 11.9% to $1.39 billion. Net income fell 12.2% to $473.9 million despite higher operating income, while capital expenditures rose 141.6% to $87.7 million. Cash and shareholders' equity both declined roughly 19% year over year.

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