Cybersecurity stocks had a rough week after Palo Alto Networks (NASDAQ:PANW) reported significant growth deceleration. Total billings are expected to range from 2% to 4% in the fiscal third quarter of 2024, and a sudden shift in strategy didn’t do the corporation any favors.
Many cybersecurity stocks proceeded to lose ground after the earnings report came out. While the sector has experienced some pushback due to high valuations and decelerating revenue growth, some cybersecurity stocks will likely continue climbing the growth ladder. These investments will be more enticing if you have a lengthy time horizon.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) has reported multiple disappointing quarters. That trend started in August but has reduced the risk for future shareholders. Investors have come to understand that growth will be slower in the upcoming quarters until the cybersecurity industry rebounds.
Fortinet reported 10.3% year-over-year revenue growth in Q4 2023, with billings up by 8.5% year-over-year. Billings growth accelerated slightly compared to Q3 2023, which is a good sign. However, the company experienced a 1% year-over-year decline in net income in the fourth quarter.
Fortinet projects revenues of between $5.715 and $5.815 billion in fiscal 2024. The midpoint of $5.765 billion is an 8.8% year-over-year improvement from the $5.3 billion it generated in fiscal 2023.
It’s a significant deceleration compared to previous years that featured 30%+ year-over-year revenue growth and even higher net income growth. However, this knowledge is out in the open. Investors won’t be surprised by a PANW type of event. Fortinet has a lengthy history and should rally higher when the rebound arrives.
Cloudflare (NET)
Cloudflare (NYSE:NET) isn’t profitable quite yet, but the company released a solid earnings report in the fourth quarter. After what happened with Palo Alto Networks, part of a cybersecurity stock’s value is seeing that the stock made it through Q4 earnings without getting decimated.
In this case, Cloudflare reported a 32% year-over-year increase in revenue. The company achieved record operating cash flow and signed on its highest-paying new customer. Cloudflare narrowed its GAAP net loss to $27.9 million compared to $45.9 million in the same time last year. Meanwhile, the company is sitting on $1.7 billion in cash, cash equivalents and available-for-sale securities.
Cloudflare embodied consistency when many cybersecurity firms reported decelerating revenue growth. The company reported 33% year-over-year revenue growth for all of 2023, similar to the Q4 2023 growth rate.
Cloudflare is aiming to generate $1.65 billion in revenue at its midpoint for full-year 2024 guidance. That guidance suggests 27% year-over-year revenue growth. That’s still a healthy revenue growth rate, considering how other firms have significantly decelerated their growth rates.
Alphabet (GOOG, GOOGL)
Unlike the other two stocks on this list, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) isn’t a pure play in the cybersecurity industry. Most of the company’s revenue comes from advertisements, but Alphabet has grown a large presence in cybersecurity over the years. The company uses cybersecurity protocols for many of its applications, but Alphabet’s big catalyst is its cloud platform.
Google Cloud helps businesses and individuals keep their information safe and organized. That segment has become a larger percentage of Alphabet’s total business and achieves higher growth rates than the company’s advertising network. Google Cloud revenue reached $9.2 billion in Q4 2023. The segment represented more than 10% of total revenue and achieved a 25.7% year-over-year growth rate.
Profit margins for Google Cloud have also improved and will help Alphabet generate higher returns for shareholders. The segment swung from a $186 million net loss to an $864 million net gain. Google Cloud has turned an unprofitable venture into a nearly double-digit net profit margin in one year. The company has a great opportunity to expand margins for this segment.
On this date of publication, Marc Guberti held a long position in GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
