Fortinet, Inc.

(NASDAQ Global Select)
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Bullish +65

Fortinet vs. CrowdStrike: Both Grew 26%. Why Pay Four Times the Earnings Multiple?

AI integration Company update AI-generated analysis

πŸ“Š Fortinet and CrowdStrike both achieved roughly 26% revenue growth in their latest quarters.

πŸ’° Fortinet trades at approximately 53x current-year adjusted earnings guidance as of October 2.

πŸš€ CrowdStrike commands a much higher valuation of roughly 215x its current-year adjusted earnings guidance.

πŸ“ˆ Fortinet reported a 33.7% GAAP operating margin in Q2, demonstrating strong profitability.

πŸ’΅ Fortinet generated $966 million in free cash flow, equivalent to 47.2% of its revenue.

⚠️ CrowdStrike recorded a $33.2 million GAAP operating loss on $1.47 billion of revenue.

πŸ”§ CrowdStrike added back $399 million in stock compensation and payroll taxes to reach adjusted profit.

πŸ›‘οΈ Fortinet's product revenue jumped 52% while services grew 14% in the June quarter.

πŸ€– CrowdStrike's annual recurring revenue grew 25% to $5.84 billion with net new ARR up 51%.

πŸ“ˆ Fortinet reported 35% billings growth in Unified SASE and 25% in AI-driven Security Operations.

🀝 CrowdStrike is expanding its platform through partnerships with Nvidia and OpenAI.

πŸ“‰ CrowdStrike's valuation requires roughly 52% annual earnings-per-share growth to match Fortinet's multiple if the latter grows at 15% annually.

Bullish Signals
  • Fortinet reported a robust 33.7% GAAP operating margin in Q2, demonstrating superior profitability compared to peers.
  • The company generated $966 million in free cash flow, representing an impressive 47.2% of its total revenue.
  • Fortinet's product revenue surged by 52% in the June quarter, indicating strong hardware demand and upgrade cycles.
  • Services revenue grew by 14%, showing a balanced mix between hardware and recurring service income.
  • The company is successfully expanding beyond appliances with 35% billings growth in Unified SASE solutions.
  • Fortinet achieved 25% billings growth in its AI-driven Security Operations segment, signaling successful diversification.
  • Insider ownership increased significantly with the holder count rising to 62 from 52 in Q1.
Risk Factors
  • Fortinet trades at a high multiple of 53 times its current-year adjusted earnings guidance, requiring sustained growth.
  • The company faces the risk that service growth could stall if hardware upgrade cycles slow down significantly.
  • High valuation multiples necessitate continued execution to justify investor expectations in a competitive market.
Full Analysis
Fortinet (FTNT) and CrowdStrike (CRWD) both reported approximately 26% revenue growth in their latest quarters, yet investors are paying a significantly higher earnings multiple for the latter. As of October 2, Fortinet trades at roughly 53 times its current-year adjusted earnings guidance compared to 215 times for CrowdStrike, highlighting a substantial valuation gap despite similar growth rates. The article contrasts the two companies' business models and financial health. Fortinet demonstrated strong profitability with a 33.7% GAAP operating margin in Q2 and generated $966 million in free cash flow, representing 47.2% of revenue. In contrast, CrowdStrike recorded a $33.2 million GAAP operating loss on $1.47 billion of revenue, though it reported adjusted profit after adding back roughly $399 million in stock compensation. Fortinet is expanding beyond traditional appliances into Unified SASE and AI-driven Security Operations, showing 35% and 25% billings growth respectively. CrowdStrike relies on a longer growth runway with its security agents and partnerships, including Nvidia and OpenAI, but faces the challenge of monetizing these advancements to justify its premium valuation without excessive dilution.