Fortinet (Nasdaq: FTNT) cut its 2026 forecast for service revenue on October 28 while raising its outlook for billings and total revenue, and its shares fell 25% in extended trading, CNBC reported at 5:09 p.m. ET. The stock was down 25.5% before the market opened on October 29, according to CNBC's premarket report, last updated at 9:26 a.m. ET.
Service revenue, the security subscriptions and technical support that made up 63% of third-quarter revenue, grew 13%. Fortinet now expects $5.15 billion to $5.17 billion of it this year, down from the $5.18 billion to $5.22 billion it forecast in July, when it said it expected “services revenue growth to pick up in the second half of the year.” At the midpoint, the new range implies second-half service growth of about 13%, in line with the first half; the July range implied about 14%.
The quarter against Fortinet's guidance
Revenue for the quarter ended September 30 rose 20% to $2.08 billion, and billings, which Fortinet calculates as revenue plus the change in deferred revenue, rose 29% to $2.34 billion, both above the midpoints of its own guidance, the company reported. Non-GAAP earnings per share of $0.91, up 23%, and non-GAAP operating margin of 38.2% beat the top of its ranges. GAAP earnings per share were $0.86, up from $0.62.
Non-GAAP gross margin fell 2 points to 79.6%, below the 80% midpoint of Fortinet's guidance. Analysts polled by LSEG had expected 80.1%, CNBC reported. The shares had more than doubled this year before the report, SiliconANGLE reported.
Growth peaked in the second quarter
Product sales drove this year's growth and peaked in the second quarter, when they rose 52%. In the third quarter they grew 37% to $765 million, $8 million less than in the second. Service revenue growth has stayed between 11% and 14% for seven quarters:
Quarter | Billings growth (%) | Product revenue growth (%) | Service revenue growth (%) |
|---|---|---|---|
Q1 2025 | 14 | 12 | 14 |
Q2 2025 | 15 | 13 | 14 |
Q3 2025 | 14 | 18 | 13 |
Q4 2025 | 18 | 20 | 12 |
Q1 2026 | 31 | 41 | 11 |
Q2 2026 | 33 | 52 | 14 |
Q3 2026 | 29 | 37 | 13 |
Q4 2026 outlook | 20 | About 20 | About 13 |
Source: Fortinet's results releases. Q4 2026: guidance midpoints, with product and service growth calculated by SaasBuzz.
Fortinet's explanation for services
Chief financial officer Christiane Ohlgart said in her prepared remarks that service revenue “faced some headwinds from winning new large enterprise customers with ramped service activations,” and from large expansion deals that folded existing service contracts into enterprise agreements. Deals over $1 million grew 51% in total value, led by U.S. large enterprises, she said.
On the call, Ohlgart said “it’s really a timing issue” and that the effect “definitely has some impact on Q4,” according to transcripts by The Motley Fool and Investing.com. She pointed to 26% growth in service billings and a 14.5% rise in short-term deferred revenue, its fastest in five quarters, and repeated the view Fortinet gave in July:
We continue to believe the first quarter of 2026 marked the trough for our services revenue growth rate.Christiane Ohlgart, CFO of Fortinet, prepared remarks, October 28
Fortinet expects service revenue to grow faster in 2027 than in 2026, Ohlgart said. Ken Xie, Fortinet's founder, chairman and chief executive, said on the call it was three months too early for 2027 guidance but that he was confident Fortinet would grow faster than its market, which he put at 16%.
Prices, inventory and product margins
Price increases added about 10 percentage points to year-over-year billings growth, Anthony Luscri, Fortinet's vice president of investor relations, said on the call.
Xie said product sales in the first half had also been helped by the roughly six months of inventory Fortinet usually holds, an advantage he said began to fade in the third quarter as lead times for some components lengthened.
Non-GAAP product gross margin fell to 64.5% from 69.9% in the second quarter and 68.0% a year earlier, in Fortinet's supplemental financials. Ohlgart said that in the first half Fortinet sold from inventory bought at lower cost while its own prices had already gone up, and that now “the costs are creeping up.”
The outlook against July's
Xie said in the release that Fortinet had raised its billings forecast “for the third time this year.” Service revenue was the only revenue or profit forecast it lowered at the midpoint.
2026 outlook | July 29 | October 28 | Change at midpoint |
|---|---|---|---|
Billings | $9.35B to $9.55B | $9.568B to $9.718B | Up $193M |
Revenue | $8.02B to $8.18B | $8.125B to $8.215B | Up $70M |
Service revenue | $5.18B to $5.22B | $5.15B to $5.17B | Down $40M |
Non-GAAP operating margin | 35% to 37% | 36.5% to 37.5% | Up 1 point |
Non-GAAP EPS | $3.41 to $3.47 | $3.54 to $3.58 | Up $0.12 |
Source: Fortinet's results releases; changes calculated by SaasBuzz.
Since its first 2026 outlook in February, Fortinet has raised the midpoint of its revenue forecast by $570 million. Service revenue accounts for $60 million of that.
For the fourth quarter, Fortinet expects billings of $2.775 billion to $2.925 billion, revenue of $2.155 billion to $2.245 billion and non-GAAP earnings per share of $0.93 to $0.95. At the midpoints, billings would grow 20% and revenue 15%, down from 29% and 20% in the third quarter but above the roughly 14% and 13% that the July annual forecast implied for the quarter.
Looking past 2026, Fortinet said in August 2025 that about 650,000 of its firewalls would reach end of service by the end of 2026, followed by 350,000 lower-end units in 2027 that it said would matter less for product revenue. Its prepared remarks this year have not updated those figures.
Tenable (Nasdaq: TENB), which raised its full-year outlook the same afternoon, fell more than 5% in extended trading, while Gen Digital (Nasdaq: GEN) rose almost 6% after raising its fiscal 2027 forecast, SiliconANGLE reported.
