Don’t Buy FireEye

Cyber security is a growing space, but that doesn’t mean every company is the sector is well positioned to benefit from it. Most companies in the industry are reporting terrific losses and FireEye (FEYE) is one of them. While bulls have often argued that FireEye is an acquisition target, buying it on the hopes of an acquisition is not good investing.

Moreover, FireEye recently rejected two acquisition offers because it was demanding $30 per share, which seems insane given the company’s fundamentals. As a result, I think investors should sell FireEye.

FireEye cuts its guidance

FireEye has been in red previous year mainly due to slowing demand of cyber security products and increasing competition.
Even though the company’s business is continuously rising, it is not growing rapidly as compared to the analyst expectations.

In late 2013, despite sales of only $162 million and a net loss of $121 million that year, the company was valued at more than $11 billion just after its IPO. FireEye has grown sales at a sizzling rate since then, but the losses have also surged considerably. The company shared a net loss of $539 million on top-line of $623 million previous year.

It is very obvious that much of the company’s loss was mainly due to the consecutive inadequate earnings reports. In the most recent quarter, the company was not able to meet the analyst expectations, as it produced $168 million of revenue compared to analyst estimates of $172 million. On the other hand, the company also reduced its yearly revenue guidance for the full year 2016 from $815 million-$845 million to $780 million-$810 million.

Despite sharing adjusted net loss of $0.47 per share, equated to analyst expectation of $0.50, the company is still enormously non-profitable. Moreover, for the full year, the company anticipates producing positive cash flow from operations in the range of $70 million-$80 million, but that is still not profitable.

However, cash flow is most significant to the company’s short-term liquidity. In the most recent quarter, the company reported more than $900 million of cash and cash-equivalents on its balance sheet, but also shared an operating loss of $23 million. FireEye’s stock price is going down gradually, and if the company continues to decrease its guidance, stockholders may start moving away by doubting on the company’s balance sheet. Apart from these, the company is also facing a lot of competitive pressure from huge firms such as Palo Alto Networks (PANW).


Slowdown in growth and increasing competition are headwinds for FireEye. Given the company’s valuation, its fundamentals should be improving. However, as mentioned above, FireEye has gone from bad to worse, making it a very risky investment.
Published on Jul 14, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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