Fortinet, rivals tumble as dour forecast signals slowing cybersecurity spending

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Illustration shows miniatures of people with computers, binary codes and words 'Cyber attack'

Miniatures of people with computers are seen in front of binary codes and words 'Cyber attack' in this illustration taken July 19, 2023. REUTERS/Dado Ruvic/Illustration/File Photo Acquire Licensing Rights

Nov 3 (Reuters) - Fortinet (FTNT.O) sank 23% and sparked a selloff in cybersecurity stocks with a dismal forecast that compounded fears of slowing client spending in an uncertain economy.

The current premarket losses, if they hold, were set to wipe out more than $18 billion from the company's market value.

Rivals Palo Alto (PANW.O), ZScaler (ZS.O) and CrowdStrike (CRWD.O) fell between 2.5% and 3.8%.

Fortinet cut its annual revenue target on Thursday and said it expects current-quarter sales between $1.38 billion and $1.44 billion, below estimates of $1.50 billion, LSEG data showed.

"We thought sentiment reflected an expectation for a miss/ guide down, but the magnitude was even worse than our bogeys," said Raymond James analysts.

Competition has been intensifying as clients seek companies that serve as a one-stop shop for all cybersecurity needs, weighing on growth of smaller players and boosting sales at the likes of Palo Alto.

The company continues "to see increased deal scrutiny and longer sales cycles, which is constraining near-term results," Fortinet finance chief Keith Jensen said on Thursday.

Growth is also slowing in some parts of the company's business as demand normalizes after two years of rapid growth during the pandemic.

"This was a debacle quarter for Fortinet," Wedbush analysts said. "It's a head scratcher how weak things got at Fortinet."

Overall, five brokerages downgraded the company and at least 14 analysts cut their price targets, pushing the median to $60, LSEG data showed.

Fortinet shares have risen nearly 18% this year. It currently trades at nearly 33 times its 12-month forward earnings estimates, compared with Palo Alto's 44.6 and CrowdStrike's 54.5.

Reporting by Samrhitha Arunasalam in Bengaluru

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