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Is This The New Normal For FireEye?

Is This The New Normal For FireEye?

FireEye Inc (NASDAQ: FEYE) reported its Q2 results with product revenue down 18 percent year-on-year and the FY16 guidance being meaningfully lowered.

Morgan Stanley’s Melissa Gorham maintained an Equal-weight rating on the company, while lowering the price target from $16 to $15.

Q2 Results

Gorham mentioned that the Q2 results and guidance cut suggest that FireEye is “in greater transition than initially assumed.”

The company posted billings of $196 million for Q2, representing 10 percent year-on-year growth but a decline from the 23 percent reported for Q1.

“A moderation in high profile security breaches, a shift in customer buying patterns, some execution challenges and new products not yet at scale were cited as headwinds in the Q,” the analyst stated.

Gorham expects investor debate to focus on whether the company would be able to achieve improving growth in FY17, against the backdrop of slowing opex spend, to achieve breakeven free cash flow in FY17.

“Improving growth may prove difficult with a lot of moving pieces in the near term, leaving FireEye as a "show me" story,” according to the Morgan Stanley report.

Concern Areas

However, Gorham also pointed out that there were some areas of concern in Q2, including Mandiant billings, which “saw another quarter of relatively weak growth.” Management stated that there were shorter engagements, driven by moderation in big breaches in 1H.

“We assume Mandiant billings grows mid single digits in 2H and FY17,” Gorham said.

In addition, product revenue continued to decelerate, driven by more moderate levels of IR engagements, as well as shifts in purchasing from on-premise to cloud and smaller deal sizes.

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Posted-In: Melissa Gorham Morgan StanleyAnalyst Color Earnings News Price Target Analyst Ratings Best of Benzinga


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