FTNT's Subscription-Based Services Gain Steam: A Sign of More Upside?

Fortinet’s FTNT transition to a subscription-driven business signifies the growth of its recurring service revenues. These recurring-revenue upticks have become a clear engine for growth. In the first quarter of 2025, Fortinet’s service revenues rose 14% year over year to $1.08 billion, commanding 70% of total revenues. FTNT’s Unified SASE strategy, which helps organizations streamline security in a cost-efficient manner, reported recurring revenues of $1.15 billion, up 25.7% year over year, while Security Operations’ recurring revenues surged 30.3% year over year to $434.5 million.

These revenues are driven by multi-year contracts for FortiGuard’s threat intelligence services, FortiCare, FortiCloud, Unified Secure Access Service Edge (“SASE”) and Security Operations (“SecOps”) solutions. Powered by the proprietary FortiOS platform, this shift is helping FTNT build long-term revenue visibility.

To expand its subscription-based revenue streams, Fortinet is investing aggressively in its SASE and SSE offerings. The company has experienced strong traction for its SD-WAN and FortiSASE solutions in large-scale enterprise deals, including an eight-figure government deal for 6,000 users and another ed-tech deal for 40,000 users.

FTNT’s scalable, per-user pricing model with multi-year discount is expected to lock in future recurring revenues. The company expects further acceleration in subscription income as enterprises shift toward remote work environments, requiring unified tools for cloud-security management and hybrid networks. As per Seeking Alpha, Unified SASE and SecOps are expected to witness at a 24% CAGR through 2026, underscoring FTNT’s ability to benefit from its flexible subscription architecture.

Our model estimate for FTNT’s 2025 service revenues is pegged at approximately $4.6 billion, indicating a year-over-year growth of 13.4%.

FTNT's Stiff Competition in the Enterprise Security Market

Fortinet’s subscription-driven security solutions face stiff competition from Palo Alto Networks PANW and Zscaler ZS.

Palo Alto Networks secures enterprises with an integrated suite of firewalls, web gateways, and other services. It continues to deliver cloud protection through Wildfire and has recently expanded its subscription portfolio with new cloud-native services like Autofocus, Aperture and GlobalProtect. For fiscal 2025, Palo Alto Networks' Next-Gen Security platform is expected to deliver recurring revenues in the range of $5.52 billion to $5.57 billion.

Zscaler provides cybersecurity through its core platforms, Zscaler Internet Access and Zscaler Private Access, and has a customer base of over 8,650 organizations. The company’s collaboration with networking providers VMware and Silver Peak is helping it secure SD-WAN deployments, as the SD-WAN market is expected to witness a 31.6% CAGR to $80.9 billion by 2034, according to Future Market Insights. Zscaler’s full range of enterprise network security enables end-to-end protection across different environments.

FTNT’s Share Price Performance, Valuation and Estimates

FTNT shares have risen 13.9% in the year-to-date (YTD) period, underperforming the Zacks Security industry’s growth of 27.1%. FTNT has outperformed the Zacks Computer and Technology sector’s return of 8.1%.

FTNT’s YTD Price Performance

From a valuation standpoint, Fortinet stock is currently trading at a Price/Book ratio of 41.98X compared with the industry’s 25.76X. FTNT has a Value Score of F.

FTNT Valuation

The consensus mark for 2025 earnings is pegged at $2.48 per share, which has been revised upward by a cent over the past 60 days. The estimate indicates 4.64% year-over-year growth.

Fortinet, Inc. Price and Consensus

Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote

Fortinet currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research