FireEye, Inc. (NASDAQ: FEYE), launched on February 18, 2004, provides intelligence-based cybersecurity solutions that allow organizations to prepare for, prevent, respond to and remediate cyber-attacks.
The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors and across the different stages of an attack life cycle. The core of the FireEye platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyberattacks in real time.
More recently, FireEye has been in the midst of sweeping changes that have already positioned it on a rapid growth path. From an operational & financial perspective, latest quarter (Q-2) continued to be healthy both on the topline and bottom line. The management’s promised cost-cutting measures continue to deliver results. In fact, operating expenses were down by 24% compared to a year ago, which has already become a common theme with every passing quarter.
During the Second Quarter 2017, revenue of $185.5 million grew 6 percent from second quarter 2016, Operating margins increased by more than 40 percent from the second quarter 2016 and the revenue and earnings per share outlook for 2017 were raised.
Adding to the overall performance, FireEye’s continues to grow its subscription-based cloud software sales to build a lower-cost, predictable foundation of recurring revenue. Last quarter’s 15% jump in subscription revenue to $154.3 million more than compensated for the 23% drop in product sales to $31.2 million. Profitability is still an issue, but FireEye continues to improvise every quarter.
The key drivers of the overall business risk profile include, new and potential massive cyber-attacks that attract national and even international attention. This is not just driving sales of FireEye’s threat-detection systems to new customers, but also strengthening retention and average spend among its existing clients leading to a strong pipeline of recurring income.
Management expects these positive trends to continue, and the company believes it can achieve positive non-GAAP operating income in the fourth quarter of 2017. FireEye’s improving profitability has no doubt boosted the stock’ performance in the recent past, and continued success in this regard should help to fuel further gains as well.
Moreover, the company could be a takeover target. If such a deal were to take place, it would likely be at a substantial premium to FireEye’s current $14.50 share price. As such, it is an attractive investment candidate for many investors.
With the recent developments, analysts have revised their outlook on the stock: The stock currently has an average rating of “BUY” and a consensus price target of $16.50. Considering present valuation, the company is at a favorable risk reward position.
About the Company: FireEye is the intelligence-led security company. Working as a seamless, scalable extension of customer security operations, FireEye offers a single platform that blends innovative security technologies, nation-state grade threat intelligence, and world-renowned Mandiant® consulting. With this approach, FireEye eliminates the complexity and burden of cyber security for organizations struggling to prepare for, prevent, and respond to cyber-attacks. FireEye has over 6,000 customers across 67 countries, including more than 40 percent of the Forbes Global 2000.
The company is engaged in providing solutions that could be involved in stopping hacking by foreign governments. It’s one of the cyber securities Company, which has received certification from the U.S. Dept. of Homeland Security. FireEye has been part of several high profile cyber security operations over the years.
Key highlights of the most recent quarter:
- During 2017, FEYE continues to become more efficient in running operations, which contributed to increases in gross profit and operating margin in the second quarter. The company reduced total GAAP operating expenses by 24 percent and total non-GAAP operating expenses by 20 percent, compared to the second quarter of 2016, even as it accelerated investments in the development of Helix platform and next generation endpoint solution.
- The company announced that its cloud-based FireEye Government Email Threat Prevention Service received certification from the U.S. Department of the Interior (DOI).
- FireEye added various new form factors to its Endpoint Security solution, such as Linux support, antivirus replacement and remediation and Artificial Intelligence (AI) features.
- Also encouraging is that FireEye’s Street-pleasing report came amid lackluster Q2 results for the rest of the industry.
Key Demand drivers:
FireEye has established itself for the upcoming surge of demand for cyber solutions in analytics, automated, and intelligent-driven solutions which will drive overall growth over the near to medium term.
New sales and users will come from the purchase of its attached/unattached subscriptions in threat analytics and intelligence, FaaS, and other solutions revolving around Helix.
This presents an extremely attractive opportunity to uphold a new growth cycle given projections for double-digit growth in key areas of cyber security in which FireEye is a competitive force. Areas like threat analytics, mobile security, and cloud security are all projected to witness double-digit growth.
2nd Quarter 2017 Financial Results:
- Revenue of $185.5 million, an increase of 6 percent from the second quarter of 2016 and above the guidance range of $173 million to $179 million.
- Billings of $172.0 million, a decrease of 12 percent from the second quarter of 2016 and near the high end of the guidance range of $155 million to $175 million.
- GAAP gross margin of 64 percent, compared to 61 percent in the second quarter of 2016.
- GAAP net loss per share of $0.40, compared to a GAAP net loss per share of $0.86 in the second quarter of 2016.
- Cash flow from operations of negative $11.5 million, compared to cash flow from operations of negative $13.1 million in the second quarter of 2016 and better than the guidance range of negative $17 million to negative $27 million.
Guidance over the near to medium term:
For 2017, FireEye currently expects:
- Revenue in the range of $734 million to $746 million.
- Billings in the range of $745 million to $775 million.
- Positive non-GAAP operating income in the fourth quarter of 2017.
- Positive cash flow from operations of $1 million to $10 million.
- Capital expenditures between $40 million and $50 million. Capital expenditure expectations for 2017 include an estimated $22 million in capital expenditures associated with the build-out and relocation of the company’s headquarters from five separate buildings to a single building in Milpitasin late 2017.
Key risk factors and potential stock drivers:
The company’s business risk profile continues to be impinged by significant competitive pressure. There are other well-established companies that also provide this service, and since FEYE is working for large entities, there is a limited supply of customers. Therefore, FEYE’s ability to withstand competitive pressure would continue to be a critical business sensitivity factor.
Considering the overall size of company; it may not have ample liquidity at the moment. Therefore, company’s ability to ramp-up profitability while sustaining its revenue growth would be one of the key stock driver over the near to medium term.
On Monday, August 28th, 2017, FEYE closed at $14.46 (off .28%) on volume of 2.0M million shares exchanging hands. Market capitalization is $2.64 billion. The current RSI is 48.78
In the past 52 weeks, shares of FEYE have traded as low as $10.35 and as high as $16.40
At $14.46, shares of FEYE are trading below its 50-day moving average (MA) at $14.97 and above its 200-day MA at $13.44
The present support and resistance levels for the stock are at $14.38 & $14.64 respectively.
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