Top cybersecurity outfit Fortinet (FTNT +1.33%) has made good on its evolution into a hybrid software-security vendor. While other companies have been spending like crazy to acquire fast-moving cloud-computing upstarts to remain relevant, Fortinet has largely forged its own path forward and developed new products, mostly in-house.
But the work-from-home movement that picked up steam in 2020 looks like it'll have real staying power, even as effects of the pandemic ease. To that end, Fortinet recently announced it made a $75 million investment in home networking hardware-maker Linksys -- a potentially big deal for Fortinet's future growth trajectory.
A resilient growth story signals a change in strategy
Fortinet is the second-largest cybersecurity pure play in terms of annual sales (Palo Alto Networks is the largest). Like other security vendors, Fortinet hails from a time when securing a physical location with a firewall was the industry standard. Firewalls -- devices and software that control and monitor the traffic coming and going on a network -- secure things like an office building's network or a data center. Fortinet is still a best-in-class provider of these devices, especially for the physical assets that make modern cloud computing possible: data centers.
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Even during the pandemic-induced recession, this has been a resilient growth story, maintaining its double-digit percentage expansion. Sales increased 20% last year to $2.59 billion.
However, the cloud-computing industry laid the groundwork for what ensued in 2020. Faced with shelter-in-place and social-distancing orders, the white-collar workforce went home. Armed with high-speed internet, capable devices, and access to everything they need for the job over the cloud, many of these employees are never going back to the office, at least not full-time.
This could spell trouble for Fortinet's long-term growth story later on. It does a superb job securing companies' physical assets and even has products aimed at cloud-based networks and hybrid operations (organizations that make use of cloud and legacy IT). But battling its way into the home and other private localized networks could be a challenge since Fortinet's go-to-market strategy is aimed at the enterprise level.
For a work-from-home employee updating their internet and network equipment, Fortinet is likely to be absent from the equation. That's why its $75 million investment in Linksys is so significant.
The consumer network is also a work network
Linksys, a subsidiary of Taiwanese manufacturing giant Foxconn, is a top name in consumer hardware for home internet networking. But now that work-from-home has gone mainstream, consumers' at-home internet connections are now doubling as a work network. With millions of households around the globe using personal devices and internet services for their jobs, there are just as many new holes for hackers to exploit to weasel their way into an organization's data.
The average consumer is simply not going to have all the same safeguards in place to protect data like an enterprise IT team will put in place. But where digital risk abounds, a company like Fortinet sees opportunity. As part of the investment, Fortinet and Linksys will partner on new work-from-home security.
No specific product announcements were made, but suffice it to say, Fortinet could very likely be a trailblazer in a new consumer-facing business with its deal with Linksys. Home networks could use a shot of enterprise-grade security, and Fortinet clearly hopes to be in the conversation when an individual consumer goes shopping for a new router or other home-network equipment.
I wouldn't be surprised to see Fortinet make other deals like this or double down on a work-from-home strategy. CrowdStrike Holdings has gobbled up the lion's share of the cloud-based endpoint security market (securing the devices themselves that employees use) but has its eyes on growing its reach. Fortinet is creeping closer to those endpoints with its Linksys investment and has plenty more cash to utilize if it wants to push further.
It issued its first-ever debt in February (for $1 billion in gross cash proceeds), adding to the more than $1.8 billion in cash and equivalents it had on the books at the end of 2020. Fortinet said it intends to use the extra $1 billion raised for general purposes -- including capital expenditures (more organic growth) or possibly for acquisitions.
Fortinet has been hands down one of the best long-term growth stories in the cybersecurity industry, and it's further augmenting its software and hardware for a new era of technology needs. I expect its investment in Linksys will only be the beginning in a new campaign to secure work-from-home networks.
