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FireEye's Business Transitions Create Continued Volatility, Goldman Warns


FireEye Inc (NASDAQ: FEYE) reported its 1Q billings ahead and sales short of expectations. Goldman Sachs’ Gabriela Borges maintained a Buy rating for the company, while reducing the price target from $20 to $18.

FireEye reported 1Q billings of $186mn, representing 23 percent y/y growth. This was 7 percent ahead of the GS estimate and 6 percent higher than the Street expectations. Sales disappointed, however, coming in at $168mn, representing 34 percent y/y growth, but missing the Street and GS expectations by 2 percent. The shortfall was on account of mix shift toward subscriptions, analyst Gabriela Borges noted.

FireEye announced its 2Q sales guidance 6 percent short, and its billings and EBIT margins 6 percent and 400 bps below expectations. The company also reduced its 2016 sales and EBIT margin guidance by 4 percent and 100 bps, respectively, while keeping its full-year billings and EPS guidance unchanged.

Transition To Impact Shares

Kevin Mandia would take over as CEO in June, and outgoing CEO Dave DeWalt will become Chairman. “We are constructive on FireEye’s longer-term strategic initiatives but believe the ongoing transition to services/subscriptions will be a medium-term overhang on the stock,” Borges wrote.

FireEye’s transition to FireEye-as-a-Service and a cloud-based network technology platform would “position the company well for more sustainable growth longer term, while leveraging its best-in-class intelligence networks.” The analyst added, however, that the pace of revenue declines remained “difficult to model,” especially since product declines were expected to accelerate into 2017.


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