What’s Causing Fortinet’s Stock to Experience Such Volatility?


Feb. 16 2016, Updated 5:58 p.m. ET

Tableau Software’s weak guidance hammered cybersecurity stocks

In early February 2016, Fortinet’s (FTNT) stock and that of its peers showed volatility, plunging on February 5 along with Palo Alto Networks (PANW), FireEye (FEYE), CyberArk (CYBR), and Proofpoint (PFPT). These companies’ share prices suffered declines in the range of 7–13%.

Tableau Software (DATA) released its 4Q15 earnings on February 4 and reported weak earnings and outlook for 2016, due to a slowdown in customer spending. This news created a ripple effect and was instrumental in the fall of cybersecurity stocks. LinkedIn (LNKD) also issued weaker-than-expected guidance for 2016, which caused its shares to tumble by ~44% and has exacerbated the downfall in tech stocks.

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Double-digit growth in billings, strong deferred revenues

That said, Fortinet’s billings continued a more than 30% growth in both 4Q15 and 2015. In 4Q15, Fortinet’s billings grew by 37% and led its deferred revenue balance to grow by 42% on YoY (year-over-year) basis to $791.3 million. The estimates provided by the company for its 1Q16 and 2016 show YoY growth of 25% and 23%, respectively. But though these growth figures appear short of current billings growth rates, it’s worthwhile to remember that Fortinet has a history of providing conservative guidance.

Billings growth in 4Q15 breeds optimism for Fortinet’s stock

In its latest 4Q15 and 2015 results, Fortinet’s revenues posted double-digit growth and managed to beat analyst expectations. However, this was the first time in last 11 consecutive quarters that the company would not exceed the high end of estimates. (We’ll discuss this further later in this series.)

Still, the company’s billings growth beat analyst expectations in 4Q15 and provided stimulus to Fortinet, which boosted its shares by more than 20% on January 28, 2016, as the above graph shows.

Investors wanting to gain exposure to the cybersecurity space might consider investing in the PureFunds ISE Cyber Security ETF (HACK). HACK has a portfolio of 32 stocks and invests about 5% of its total holdings in Fortinet.


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