FireEye Will Get Worse Before It Gets Better

FireEye Inc FEYE shares set to open on a new 52-week low after the cybersecurity firm reported a billings and revenue miss for the fourth quarter, while guiding first quarter billings below consensus and announcing the departure of its chief financial officer.

Checking In On FireEye

FireEye’s fourth-quarter billings, a closely watched indicator of future business, came in at $222 million, lower than Street's $240 million estimate, as large deals failed to close at the end of the quarter reflecting lower sales capacity.

The company's revenue dropped to $184.7 million, missing the Street view of $191 million.

For the first quarter, the company projects revenue of $160 million–$166 million, lower than the consensus estimate of $176.6 million.

FireEye expects first-quarter billings in the range of $130 million to $150 million, also well below the average estimate of $186.3 million.

It Might Get Worse...

While it could look like this is the bottom of FireEye, hold on. Barclays, which has an Equal-Weight rating on the stock expects things to get worse before getting better.

“There was little silver lining here and fundamentally things sound like they will get worse before getting better as new products take time to ramp,” analyst Saket Kalia wrote in a note.

Though bulls may point lower expenses leading to near break-even profitability, Kalia said it was predominantly driven by lower sales commissions.

FireEye sees first quarter billings to decline 25 percent, driven by a 50 percent decline in product and management elected not to give FY 2017 guidance.

“They directionally noted FY17 billings should improve through FY17 with y/y growth in 2H, bringing us to a total billings decline of 12 percent in FY17. Management is still targeting non-GAAP operating profitability by 4Q17, but we are slightly below as we prefer to see evidence,” Kalia continued.

The analyst also noted that CFO Mike Berry’s departure, amid weak quarterly results, will trigger questions from investors about the company’s future.

“The game theory from here is interesting — will worsening fundamentals accelerate change at FEYE, or keep change at bay? We are not sure,” Kalia added.

The analyst cut the price target to $10, while the shares closed Thursday’s trading at $12.97. In the pre-market hours Friday, they plunged 19.28 percent to $10.47, a new 52-week low for the stock.