Imperial Capital Downgrades FireEye To In-Line Citing Weaker Billings Outlook

Although FireEye Inc FEYE continues to be a leader in advanced threat detection, Imperial Capital’s Michael Kim believes that there are greater near term challenges and business risks, driven by industry shifts and organizational changes.

Kim downgraded the rating on the company from Outperform to In-Line, while lowering the price target from $25 to $15.

Restructuring

The analyst mentioned that management is in the process of changing FireEye’s sales leadership, both in the EMEA and worldwide, while also planning to reduce headcount by 300-400, representing 10 percent of the employees.

Kim believes that this could be “disruptive to sales productivity and operational execution.”

The analyst expects investors to remain on the sidelines until management is able to deliver more consistent financial results and revive growth from FireEye-as-a-Service (FaaS), incident response services and new products FY17, while also remaining on track to achieving sustained profitability.

Weak Billings

Kim also noted that the “recent deceleration of FaaS, which management attributed to the lack of certain features, in particular the ability to leverage alerts from customers’ other security products.”

With expanded threat coverage, the analyst expects stronger FaaS adoption, although visibility continues to be limited due to flat sequential product subscription billings in 2Q16.

The 2H16 and FY17 estimates have been lowered to reflect FireEye’s lower than expected billings during 2Q16 and a flat billings outlook for 2H16.

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