This Cybersecurity Stock Just Had Its Worst Day in Years. Is It a Buying Opportunity?

Fortinet (NASDAQ:FTNT) reported third-quarter results on Wednesday that beat expectations on the top and bottom lines. Revenue grew 20% year over year to $2.08 billion, and adjusted earnings per share of $0.91 topped the $0.86 analysts expected. The cybersecurity company also raised its full-year billings guidance for the third time this year and added $1.2 billion to its buyback authorization.

After reading that paragraph, you might think that the stock would be soaring. But you'd be wrong. Fortinet's stock fell about 25% after the report was released. So what happened?

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Services revenue fell short

Fortinet makes money in two main ways. It sells firewalls and other security hardware, which it reports as product revenue, and it sells the subscriptions and support contracts that go with that hardware, which it reports as services revenue. Services are the recurring, higher-margin part of the business, so investors watch that line closely.

Product revenue jumped 37% in the third quarter, but services revenue grew only about 13%, to $1.31 billion. Fortinet also lowered its full-year services forecast to $5.15 billion to $5.17 billion, from $5.18 billion to $5.22 billion in July, even as it raised its total revenue and billings guidance. Investors seem worried that customers are buying hardware without adding as many services. This is known as low attach rates, and it is a major concern for businesses that sell both hardware and accompanying software and services.

Management says it's a matter of timing

CFO Christiane Ohlgart called the shortfall "really a timing issue." She said several large enterprise deals include services that start later, after customers roll out new hardware, and that some customers may not want to pay for services right away. Management also clarified that it expects services revenue to grow faster in 2027 than it did in 2026.

There's some evidence for that view. Fortinet's deferred revenue, which is money customers have paid in advance for services it hasn't delivered yet, rose to $7.93 billion at the end of September from $7.12 billion at the end of 2025.

Is Fortinet a buy after the drop?

Of course, "it's just timing" is something investors often hear from companies that miss on a key metric, but it can take a few quarters to know whether it's true. If services growth continues to lag, the market's concern about weaker attach rates could prove correct.

Having said that, Fortinet's overall business still grew by 20% year-over-year in the third quarter, and it generated $865 million in free cash flow. For long-term investors who believe the services gap will close and that the general trends for cybersecurity will be positive over the next few years, this drop offers a much lower entry point. More cautious investors might want to wait a quarter or two for proof.

Matt Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet. The Motley Fool has a disclosure policy.