Fortinet Outshines Zscaler in Cybersecurity Market Race

Fortinet has demonstrated stronger stock performance and growth prospects compared to Zscaler. However, both companies are forecasted for slower revenue growth amid macro challenges.

Date: 08-09-2024

AI Rating: 5

Analysis of Fortinet and Zscaler

In analyzing Fortinet (NASDAQ: FTNT) and Zscaler (NASDAQ: ZS), several key aspects related to their market performance and financial outlooks emerge.

Revenue Growth

Fortinet has experienced significant revenue growth with a compound annual growth rate (CAGR) of 25% from 2019 to 2023, escalating its annual revenue from $2.2 billion to $5.3 billion. However, for the upcoming fiscal period (2024), Fortinet expects revenue to rise only between 9% to 11% to around $5.8 billion - $5.9 billion, indicating a marked slowdown. Analysts project a revenue increase of 10% in line with their forecasts.

On the other hand, Zscaler's CAGR from fiscal 2019 to fiscal 2024 was significantly higher at 48%. For fiscal 2025, Zscaler anticipates a revenue growth of 20% to 21%, also signifying its slowest growth rate since its market debut.

EPS and Profit Margins

Fortinet's adjusted EPS is expected to grow by 25% in 2024, highlighting a stable trajectory, although this is anticipated to drop to 10% growth in 2025. This represents a positive outlook for earnings growth, even as expectations for revenue growth have softened.

Zscaler, conversely, faces a projected decline in adjusted earnings of 10%-12% for fiscal 2025, which indicates potential challenges in maintaining profitability.

Challenges

Both companies cite macroeconomic headwinds as contributing factors to their decelerated growth rates. Additionally, Fortinet mentions increased competition from rivals such as Palo Alto Networks and CrowdStrike, which could further impact their market share and pricing power. Zscaler's loss of profit could also deter potential investors.

Conclusion

Considering these factors, Fortinet's stable EPS growth and historically robust revenue increase provide a degree of reassurance despite the expected slowdown in growth. Zscaler's more rapid growth trajectory appears to be waning, potentially raising concerns about the sustainability of its profits moving forward.

Stocks: FTNT ZS PANW CRWD