FireEye Looks Finished

I have been skeptical of loss-making cyber security stocks like FireEye (FEYE) and have recommended selling it multiple times this year. The only positive that I saw in the company was a potential buyout. However, buying the stock on the hopes of an acquisition would be a very speculative investment.

It was recently reported that FireEye was subjected to multiple offers, however the company’s management rejected them as they were holding out for an offer of $30 per share. Although it is obvious that many companies are looking to acquire FireEye, it is unlikely that the company will be able to squeeze out an offer of $30 a share after the latest quarterly results.

FireEye reported its Q2 earnings yesterday, and the results were disastrous as shares are currently down over 15% in afterhours trading.
FireEye reported Q2 EPS of -$0.30, beating the analysts’ estimate by $0.09. While the company did well on the earnings front, its revenue miss of $6.62 million was very disappointing considering that it is a growth stock.

FireEye only reported a revenue jump of 19% year over year to $175 million. The company’s billings also only jumped 10% to $196 million on a year over year basis. FireEye is apparently a growth stock, and reporting slower growth is a sin for such companies, especially in the tech sector.

However, to make matters worse, FireEye even announced a layoff, which is not something investors would like to hear. A growing company laying off employees is a big red flag for investors as it points to the fact that growth is saturating. Given that FireEye’s valuation is insane, the company delivered a terrible quarter and deserves to be trading further down.

However, on the flipside, now that the stock is trading under $14, the chances of acquisition are higher. That being said, I think FireEye’s management should be more realistic and not demand a price of $30 per share as FireEye is not worth it, especially after yesterday’s result.

Amid slowing growth, overvaluation and increasing competition, I think FireEye should accept any buyout offer that is 20% higher than its current market price.


The best case scenario for FireEye longs would be an acquisition. However, the management will not receive a bid of $30 per share, thus I think investors should still stay away from the stock for the time being.
Published on Aug 5, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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