Key catalysts of service revenue growth
Higher demand for security across various industries has allowed Fortinet (FTNT) to maintain strong revenue growth. The growing threat of cyberterrorism has prompted many financial institutions to install the company’s security products. Service revenue includes business from the FortiGuard security subscription and FortiCare technical support services, as well as professional and training services. The company’s bundled packages are competitive against products of F5 Networks (FFIV), Juniper Networks (JNPR), and McAfee.
Furthermore, the transition of the business from product revenues to higher-margin recurring service revenue continues to boost the sale of high-end and mid-range services.
Detailed analysis of service segment
The graph above shows the service revenues in the last five quarters. Revenues continue to be in an increasing trend. During the period, Fortinet revenues have improved at a CAGR (compound annual growth rate) of 5.7%. The company also maintained more than 20% growth in every quarter.
In fiscal 4Q17, the service revenue of the company rose 24.8% YoY (year-over-year) to $255 million. At the end of fiscal 2017, the segmental revenue came in at nearly $918 million, up 26% YoY. The growth in service revenue was mainly due to the recognition of revenue from the growing deferred revenue balance of the FortiGuard security subscription and FortiCare technical support business.