Fortinet Inc. (FTNT) Valuation

Executive Summary

Fortinet is a multinational leading cyber-security company that has expanded it's product range to provide end-to-end protection against possible intellectual property security risks. The company's revenue is stable as a result of its payment structure, consisting of contracts and subscriptions, and its commitment and success consistently decreasing it's cost of revenues. Fortinet also maintains essentially zero debt.

$108.27 - Value (PPS) from Industry Relative Valuation
$168.73 - Value (PPS) from Financial Relative Valuation
$144.93 - Value (PPS) from Discounted Cash Flow

$141.07 - Reconciled Share Price Estimate

When comparing to Fortinet's current share price of $136.69, a hold recommendation is issued.

Company Overview
Revenue Segments
The Customers & Revenue Geography
Distribution Strategies
Future Strategies
SWOT Analysis

Company Overview

Fortinet Inc. (FTNT) trades on the NASDAQ with a current price of $136.69, a market cap of 22.10 billion, and has a fiscal year end of December 31st. All information is in millions of USD except for share prices or marked otherwise.

$788.50 - Products
$750.90 - Security subscriptions
$616.80 - Technical support and other

The product revenue is generated by sales of FortiGate products and other hardware and software solutions. Service revenue relates to sales of FortiGuard security subscription, FortiCare technical support services and other services.

The Customers & Revenue Geography

Fortinet's end-customers are in over 80 countries and include small and medium-sized businesses, large enterprises and government organizations across a wide range of industries, including telecommunications, government, financial services, retail, technology, education, manufacturing and healthcare.

42% - $917.30 - Americas
38% - $813.90 - Europe, Middle East & Africa (EMEA)
20% - $425.00 - Asia Pacific (APAC)

Distribution Channels

Fortinet primarily sells its products and services through a two-tier distribution model. They sell to distributors that sell to networking security and enterprise-focused resellers and to service providers and managed security service providers (“MSSPs”), who, in turn, sell to end-customers. In certain cases, sell directly to large service providers and major systems integrators.(Including: Exclusive, Ingram Micro, Synnex Corporation, Tech Data Corporation and Arrow Electronics, Inc.)

Future Strategies

Increase sales to medium and large sized businesses and continue to develop and improve the cyber-security products/services that are currently the main revenue driver.

Sources: Fortinet Inc.'s 10K & Bloomberg

SWOT Analysis

Strengths

High customer satisfaction
Strong brand portfolio (important when expanding into new product categories)
Great track record of successful M&As
Good returns on capex (Fortinet has generated good returns on capex’s by building new revenue streams)
Product innovation
Virtually no debt

Weaknesses

The marketing is lackluster
Investment in R&D is below the fastest growing competitors in the industry
Weak financial planning and product demand forecasting

Opportunities

A stable free cash flow means Fortinet can invest in new product segments
Government cybersecurity contracts

Threats

Intense competition
The company is only as good as it’s software (always in need of updates to maintain security)

Source: fernfortuniversity.com

Disclaimer

The Workday Cafe is not a registered investment, legal or tax advisor or a broker/dealer. All investment/financial opinions expressed by The Workday Cafe are from the personal research and experience of the evaluator and are intended for informational purposes only. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.