Why FireEye Is Must-Buy Stock

FireEye (FEYE) announced first quarter ended March 31, 2016 total revenue of $168.0 million, up 34 percent year-over-year from $125.4 million during the same period last year. Going forward, the company has provided revenue guidance for second quarter of 2016 and estimates total revenue to be in the range of $178 million to $185 million.

FireEye declared first quarter of 2016 non-GAAP net loss of $155.9 million or $0.98 per diluted share as against non-GAAP net loss of $134.0 million or $0.88 per diluted share in first quarter of 2015.
Moving ahead, adjusted net loss per share for second quarter of 2016 is estimated to be in the range of $0.38 to $0.40.

Impressive growth

The cybersecurity solutions provider reported continued year-over-year top line growth primarily driven by rising customer traction for the company’s advanced set of cyber threat detection and prevention solutions which is expected to drive sustainable long-term company growth.

Billings and revenue for first quarter of 2016 grew over 23% and over 34% respectively year-over-year, exceeding the high-end of top line guidance and primarily driven by improved mix of product contributions in revenue and billings including threat intelligence, service and cloud email (ETP). Revenue mix for the quarter mainly comprised of 44% revenue contribution from product subscription followed by 20%, 19% and 17% revenue contributions from products (appliances), professional services and support services respectively.

FireEye’s gross profit margin for the quarter remained nearly flat year-over-year and in line with the guidance of about 70%. Services and subscription gross margins both grew 2% year-over-year to about 72.5%. Product gross margin fell owing to weaker appliance volume and approximately $1 million of one-time “other COGS”. Cash flow from operations for the quarter declined year-over-year due to greater cash expenses and higher acquisition liabilities.

The cybersecurity solutions company illustrated excellent year-over-year top line growth mainly due to notable customer traction for its advanced cybersecurity products amid exponentially rising online threat over time. However, FireEye’s bottom line suffered due to growing quarterly expenses, negatively impacting its margins.

Improving its financials and prospects

FireEye seems consistently focused on optimizing its financial position with total expenses for the quarter as a percentage of revenue being recorded in the range of $7 million to $8 million which is less than expense guidance in the range of $197 million to $199 million and thus, depicting cost optimization. Further, the cybersecurity major is continuing to illustrate year-over-year reduction in operating expenses as a percentage of revenue with nearly 13 points year-over-year contraction in expenditures for the quarter. Therefore, operating margin as a percentage of revenue grew approximately 13 points year-over-year and including Invotas and iSIGHT expenditures progressive decline that depicts revenue seasonality.

The global cybersecurity services provider continued to enhance its first quarter of 2016 billings mix with a majority 48% of total billings contributed by product subscriptions. One of several billings expansion drivers includes a consistent year-over-year addition of new customers with a net value of transactions exceeding $1 million. Moreover, the average contract length including renewal and new subscriptions & support continued to grow over the years and reflects strengthening customer confidence in the company’s advanced cybersecurity products. Also, the consolidated deferred revenue continued to grow year-over-year with the recent addition of extra deferred revenue from the acquired sources.

The notable cost-optimization initiatives of FireEye targeted towards minimizing the non-core expenses while consistently growing operating margins along with superior billings growth initiatives is believed to drive sustainable long-term company growth while delivering attractive shareholder returns.

According to the key investment analysts at FactSet, FireEye is estimated to illustrate a quarterly loss of 50 cents per share as against a loss of 48 cents per share witnessed during the same period last year. The company is also expected to continue to face tough competition from its peers with extremely logical pricing for their products and services, as opposed to FireEye having higher pricing compared to the industry’s average, driving away the key customers.

Conclusion

Overall, the investors are advised to “Sell” any equity held in FireEye, Inc. considering the company’s weaker growth prospects with PEG ratio of -0.41, indicating no growth but decline as against somewhat healthier industry’s growth average of 0.99. The profit margin of -86.56% signifies no profit but loss. However, FireEye has a robust financial position with significant total cash of $1.17 billion against a weaker total debt position of $706.20 million only, encouraging the company to make future growth investments.
Published on May 13, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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