Strong revenue growth
Fortinet’s (FTNT) sales have grown at a compound annual growth rate (or CAGR) of 24.0% from $615 million in 2013 to $1.8 billion in 2018. Wall Street estimates the sales to grow at a CAGR of 13.5% between 2018 and 2021 to reach $2.63 billion.
Services revenue estimated to account for 65.0% of total sales in 2019
Fortinet expects Services revenue to account for 65.0% of total sales in 2019, up from 53.0% in 2015. Services sales provide a recurring stream of revenue and have a higher gross margin of 87.0% compared to an overall margin of 76.0%. Fortinet expects Services revenue between $1.34 billion and $1.36 billion in 2019.
Non-GAAP operating margin and profitability
Revenue growth has also driven profit margins higher for Fortinet. The company’s operating profit grew 28.0% annually between 2013 and 2018 and is estimated by analysts to grow 17.0% annually between 2018 and 2021. Similarly, Fortinet’s net profit grew 50.0% annually between 2013 and 2018 and is estimated by analysts to grow 4.0% annually between 2018 and 2021.
Fortinet’s adjusted operating margin is estimated to almost double from 13.0% in 2015 to 23.0% in 2019. An improvement in profitability has also driven up free cash flow margin. Fortinet’s free cash flow margin has risen from 24.0% of sales in 2014 to 33.0% of sales in 2018.