FireEye Had A Great Quarter, But Long-Term Questions Remain

Cybersecurity firm FireEye Inc FEYE reported better-than-expected first quarter earnings per share and issued upbeat guidance for the second quarter and the full year.

Shares were rallying in reaction to the results.

Q1 Print

• Revenues: $173.7 million, up 3.4 percent year-over-year, ahead of the guidance and the $163.5 million consensus estimate
• Billings: $152.4 million, down 18 percent year-over-year but exceeded the consensus estimate of $142.5 million
• Product subscription segment: 17.4 percent year-over-year growth
• Operating margins: -7.5 percent vs.consensus estimate of -25 percent
• Loss per share: $0.09 Vs consensus estimate of $0.26
• Cash flow from operations: -$17 million vs. consensus estimate of -$35.6 million.

Related Link: Exclusive: FireEye Management Boast Turnaround In Operating Margins

Analysts' Take on the Q1 Results

Oppenheimer analysts Shaul Eyal and Tanner Hoban attributed the strong results to improved sales execution.

BMO Capital Markets analyst Keith Bachman said the results were driven by products and the attached subscription services to appliances. The analyst believes some deals pushed out in the fourth quarter closed in the first quarter, demonstrated by a rebound in APJ sales. However, the analyst noted the company was able to upsell its new appliances as well as some cross sell opportunities with Helix transactions.

Way Forward

Oppenheimer believes the company's goal toward its path to profitability remains on schedule for the fourth quarter of 2017. The company expects to be operating cash flow positive in fiscal year 2017.

"We are encouraged by FEYE's current trajectory and remain confident in its timing," the firm said.

While noting that FireEye was able to solidify four deals in the quarter, despite Helix being made available only in the final day of the first quarter, Oppenheimer said it expects to see more pep in FireEye's step as 2017 unfolds, given the Helix availability.

BMO thinks FireEye had a great quarter and accordingly, sees the stock moving higher near term. However, given the recent launch of several new products and management's stated intent to reshape the company into a complete security platform, the firm thinks the longer-term growth potential remains a question.

Adjusting Estimates

Oppenheimer expects second quarter revenues and loss per share at $176.6 million and $0.12, respectively. This compares to the company's guidance of $173 million to $179 million in revenues and $0.10 to $0.14 in loss per share.

The firm reduced its 2017 revenue estimate to $813 million from $859 million but improved its loss per share estimate to $0.32 from $0.46. The company's guidance is for revenues of $724 million to $736 million and loss per share of $0.26-$0.36.

For 2018, Oppenheimer expects revenues of $813 million, down from its previous estimate of $859 million, and a loss per share of $0.01. The firm lowered its 2019 earnings per share estimate to $0.30 from $0.39 and revenue estimate to $908 million from $974 million.

Meanwhile, BMO lowered its 2017 and 2018 revenue estimates but improved its loss per share estimates. The firm now expects revenues of $799 million for 2018, down from the previous $835 million, but expects a loss of $0.05 compared to its previous loss estimate of $0.27. The firm also increased its free cash flow per share estimate to $0.19 from $0.12.

"Given all the changes in FEYE's strategy, we believe that we have more uncertainty in our longer-term estimates than most of our other covered companies," the firm said.

Concluding, Oppenheimer said, "We are encouraged by FEYE's positive 1Q performance and believe the company's renewed flagship offering could be a solid opportunity to rejuvenate growth."

Oppenheimer reiterated its Outperform rating on the shares of the company and it has a 12-18 month price target of $23.

BMO retained its Market Perform rating but raised its price target to $15 from $11. The upward adjustment to the price target was predicated on the firm's believe that FireEye is moving in a positive direction, both from a top line and cost focus.

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