Fortinet Q1 2025 slides: Product revenue accelerates as SASE expansion continues

Introduction & Market Context

Fortinet Inc (NASDAQ:FTNT) reported strong first-quarter 2025 results on May 7, demonstrating accelerated growth across all business segments and geographies. The cybersecurity leader posted 13.8% year-over-year revenue growth, with a notable rebound in product revenue and continued expansion in high-growth areas like Unified SASE and Security Operations.

The company’s performance comes amid growing demand for integrated security solutions and the ongoing convergence of networking and security technologies. Fortinet’s position as a trusted cybersecurity provider was reinforced by its #7 ranking in the Forbes Most Trusted Companies list, making it the only cybersecurity company in the top 50.

As shown in the following recognition highlights, Fortinet has established significant trust across multiple sectors:

Quarterly Performance Highlights

Fortinet delivered robust financial results for Q1 2025, with total revenue reaching $1.54 billion, up 13.8% year-over-year. The company saw balanced growth across its portfolio, with product revenue increasing 12.3% to $459.1 million and service revenue growing 14.4% to $1.08 billion. Service revenue now represents 70% of total revenue, reflecting the company’s successful transition toward recurring revenue streams.

The detailed financial results demonstrate consistent performance across key metrics:

Profitability remained strong with a gross margin of 81.9% and operating margin of 34.2%. Net income reached $452.3 million, resulting in diluted earnings per share of $0.58. Free cash flow was particularly robust at $782.8 million.

Geographically, Fortinet saw growth across all regions, with EMEA leading at 16.5% year-over-year growth to $628.4 million, followed by the Americas at 13.1% growth to $629.8 million, and APAC at 9.6% growth to $281.5 million. This regional breakdown illustrates the company’s global strength:

Strategic Initiatives

Fortinet’s growth strategy focuses on three key addressable markets: Secure Networking ($75 billion, +9% YoY), Unified SASE ($63 billion, +18% YoY), and AI-Driven Security Operations ($146 billion, +29% YoY). These segments represented 65%, 25%, and 10% of Q1 2025 billings, respectively.

The following chart illustrates Fortinet’s addressable markets and their growth rates:

The company’s expansion in high-growth areas is evidenced by the strong performance of its Unified SASE and Security Operations segments. Remaining Performance Obligations (RPO) for Unified SASE grew 19% year-over-year to $1.47 billion, while Security Operations RPO increased 18% to $631 million. Annual Recurring Revenue (ARR) showed even stronger growth, with Unified SASE up 26% to $1.15 billion and Security Operations up 30% to $434 million.

This growth trajectory in recurring revenue streams is clearly demonstrated in the following chart:

Fortinet’s success in cross-selling these solutions to existing customers has been remarkable, with 91% of SASE/SSE sales and 97% of Security Operations sales going to existing customers. This efficiency in customer expansion is illustrated here:

Competitive Industry Position

Fortinet maintains a leadership position in multiple security categories, serving as a Leader in Network Firewall, SD-WAN, and Wired & Wireless LAN according to Gartner (NYSE:IT) Magic Quadrants. The company is also positioned as a Challenger in Secure Service Edge (SSE (LON:SSE)) and Single-Vendor SASE.

The company’s integrated operating system approach provides a competitive advantage by enabling seamless adoption of additional services:

Fortinet’s product innovation continues with the introduction of the FortiGate 700G Series, featuring the company’s 7th-generation ASIC Security Processor. The new series offers significant performance advantages over competitors in key metrics like firewall throughput, IPSec VPN, and threat protection.

The company is also embedding AI capabilities across its Security Fabric Platform through FortiAI-Protect, FortiAI-Assist, and FortiAI-SecureAI, enhancing its competitive positioning in the rapidly evolving cybersecurity landscape.

Forward-Looking Statements

Fortinet provided optimistic guidance for Q2 and full-year 2025. For Q2, the company expects billings between $1.685 billion and $1.765 billion, representing approximately 12% growth, and revenue between $1.59 billion and $1.65 billion, up about 12.9% year-over-year.

For the full year 2025, Fortinet projects:

• Billings: $7.2 billion to $7.4 billion
• Revenue: $6.65 billion to $6.85 billion
• Service Revenue: $4.575 billion to $4.725 billion
• Gross Margin: 79.0% to 81.0%
• Operating Margin: 31.5% to 33.5%
• Earnings Per Share: $2.43 to $2.49

The detailed guidance is presented in the following table:

The company also highlighted an upcoming firewall refresh cycle, with approximately one-quarter of its install base expected to reach End of Service by 2026. This presents a significant opportunity for hardware upgrades and service expansion in the coming years.

Market Reaction

Despite the strong quarterly results and positive guidance, Fortinet’s stock faced pressure in after-hours trading, dropping 7.37% to $98.85. This reaction may reflect high market expectations following the company’s strong performance in previous quarters, including Q3 2024 when Fortinet reported record gross margins of 83.2% and operating margins of 36.1%.

The company continues to demonstrate its ability to maintain the "Rule of 45" (revenue growth plus operating margin), having achieved 47% in 2024 and projecting to exceed 45% again in 2025. This consistent performance, combined with the company’s strategic positioning in high-growth security markets and upcoming product refresh cycle, suggests Fortinet remains well-positioned for long-term growth despite short-term market fluctuations.

Full presentation:

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