In the competitive landscape of the cybersecurity market, two notable players stand out: Fortinet (NASDAQ: FTNT) and Zscaler (NASDAQ: ZS). Each company offers distinct approaches to cybersecurity solutions, catering to a range of client needs in an era where digital security is paramount.
Fortinet has made its mark by developing advanced, next-generation firewalls (NGFWs) that enhance conventional firewall capabilities with sophisticated network filtering technologies. Over the years, these NGFWs have evolved into the backbone of Fortinet’s “Security Fabric,” an extensive suite of over 50 cloud-based and on-premises security services. This impressive infrastructure allows Fortinet to serve more than 775,000 clients globally. Their focus on creating proprietary chips also differentiates them, enabling better threat detection and response capabilities compared to standard silicon alternatives—consequently offering tighter control over supply chains.
On the opposite end of the spectrum is Zscaler, a notably agile provider specializing in cloud-native security solutions, particularly in the realm of zero-trust architecture. Zscaler’s services eliminate the need for on-premises hardware, significantly reducing costs and maintenance for clients while ensuring their security is always updated and easily scalable. With a client roster that includes nearly a third of the Fortune Global 2000 companies, Zscaler possesses a smaller but rapidly growing customer base of over 7,700—reflecting the increasing demand for modern cybersecurity frameworks.
When assessing growth trajectories, Fortinet has demonstrated remarkable consistency since its IPO in 2009, with revenue increasing at a compound annual growth rate (CAGR) of 24% from 2009 to 2019 and a 25% CAGR from 2019 to 2023, climbing from $2.2 billion to $5.3 billion. Nevertheless, forecasts indicate a slower growth rate for the upcoming year, with projections suggesting an increase of only 9% to 11% for fiscal 2024. The company cites macroeconomic challenges and a downturn in demand for traditional cybersecurity appliances as contributing factors to this deceleration, which could impact its goal of achieving $8 billion in revenue by 2025.
Zscaler, on the other hand, has exhibited explosive growth since going public in 2018, achieving a remarkable 48% CAGR in revenue from fiscal 2019 to 2024. This sharp ascension is largely attributed to a heightened need for zero-trust services to guard against multifaceted cyber threats. However, like Fortinet, Zscaler, too, anticipates some slowing, with expectations for only 20% to 21% revenue growth in fiscal 2025.
Despite their notable achievements, Fortinet’s stock has remained attractive due in large part to its profitability under generally accepted accounting principles (GAAP), while Zscaler has struggled to achieve similar levels, often showcasing only non-GAAP profitability after excluding stock compensation. This financial disparity could influence investor decisions between the two stocks moving forward.
While Zscaler undoubtedly presents a compelling growth narrative, the reality is that Fortinet’s diverse offerings, broader customer base, and strong profitability position it as a more balanced choice for investors looking to capitalize on the rapidly growing cybersecurity sector. Though both companies face headwinds, Fortinet’s ability to leverage its established infrastructure and innovate with custom hardware gives it a competitive edge that may prove invaluable in the coming years.
As investors contemplate their next moves in the tech-heavy market, Fortinet’s steadiness against Zscaler’s rapid expansion narrative may well sway investment decisions. Industry leaders such as Fortinet remain integral players amid a continuously evolving need for sophisticated cybersecurity measures, promising robust options and growth potential for savvy investors looking to enhance their portfolios.
In this dynamic landscape, the focus remains on strategic investment choices that balance growth, innovation, and long-term profitability.