A month has gone by since the last earnings report for FireEye, Inc. . Shares have lost about 14.7% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FireEye Post Narrower-than-Expected Q4 Loss, But Revenues Fell
FireEye posted adjusted loss (excluding one-time items but including stock-based compensation) of $0.22 per share for fourth-quarter 2016, significantly narrower than the Zacks Consensus Estimate of a loss of $0.49 as well as the year-ago quarter’s loss of $0.73.
On a GAAP and non-GAAP basis as well, the year-over-year comparisons were favorable. On a GAAP basis, the company reported loss of $0.37 per share, while it had reported a loss of $0.87 in the year-ago period.
On a non-GAAP basis, FireEye posted loss per share of $0.03 compared with a loss of $0.36 in the fourth quarter of 2015. The quarter’s non-GAAP loss per share was also significantly narrower than management’s loss guidance of $0.16–$0.18 (mid-point: $0.17).
Revenues
FireEye’s top-line performance was quite a disappointment. The company’s fourth-quarter revenues of $184.7 million not only registered a marginal year-over-year decline for the first time ever but also fell short of the Zacks Consensus Estimate of $192 million as well as its own guidance of $187 million to $193 million (mid-point: $190 million).
The company determined several internal and external factors which impacted its overall top-line performance. Internal factors include a number of sales leadership vacancies, reduced sales capacity and release of several major innovations on a limited basis focused on a set of targeted customers only. From an external perspective, the company analyzed less in the sense of urgency in some buyers.
The company further revealed that dismal performance in the Asia-Pacific region was the main reason behind the underperformance. The performance in the Asia-Pacific region was mainly impacted by the company’s management challenges.
Billings decreased 14% to $221.8 million, below management’s guidance of $230 million to $250 million mainly due to all the factors mentioned above.
Segment-wise, Product revenues tanked 49.6% year over year to $33.6 million. Apart from the aforementioned factors, FireEye’s strategy of transitioning its business to subscription and cloud-based offerings from hardware offerings was the main reason for the decline in product revenues. Subscription and Services revenues, on the other hand, rose 27.9% to $151.1 million.
Nonetheless, FireEye continues to win large deals. Notably, the company closed 34 transactions with an individual value of over $1 million. The company also added 330 customers in the quarter. Moreover, its customer renewal rate remained above 90% during the quarter.
Operating Results
Adjusted gross profit increased 1.6% from the year-ago quarter to $132.2 million. Gross margin improved 120 basis points (bps) to 71.6%.
Adjusted operating expenses decreased 31.5% to $164.6 million. FireEye revealed that it managed to bring down its non-GAAP operating expenses on a year over year and sequential basis due to its sustained focus on cost optimization and productivity.
The company posted adjusted operating loss of $32.4 million, 70.6% narrower than the year-ago loss of $110.3 million. Moreover, FireEye revealed that its non-GAAP operating margin was -1%, compared with -28% in the fourth quarter of 2015. This marked the best operating margin performance by FireEye in its entire history.
Adjusted net loss for the fourth quarter was $35.9 million, compared with the year-ago net loss of $114.3 million. On a non-GAAP basis, the company reported net loss of $4.8 million compared with the year-ago quarter’s loss of $56.5 million.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of approximately $935.7 million, slightly higher than $926.2 million at the end of the previous quarter. Accounts receivable were $121.2 million compared with $124 million at the end of the third quarter. During the year, the company used $14.6 million of cash for operating activities.
Guidance
FireEye provided a disappointing first-quarter outlook. For the quarter, the company anticipates revenues in the range of $160 million to $166 million (mid-point: $163 million). Billings are expected in the range of $130 million to $150 million. Non-GAAP operating margin is projected to remain in the band of -24% to -26% of revenues. The company expects non-GAAP loss per share of 26–28 cents (mid-point: 27 cents). Operating cash flow is likely to remain in the range of negative $30 million to negative $40 million.
For 2017, the company provided only quantitative guidance. FireEye expects billings and revenues to improve throughout the year, mainly in the second half. It further anticipates positive operating cash flow for the first time ever in 2017.
How Have Estimates Been Moving Since Then?
Following the release , investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.
VGM Scores
At this time, FireEye's stock has a strong Growth Score of 'A', while its Momentum is lagging a bit behind with 'C'. However, the stock was allocated a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable more for growth investors than momentum investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is FireEye (FEYE) Down 14.7% Since the Last Earnings Report?
A month has gone by since the last earnings report for FireEye, Inc. . Shares have lost about 14.7% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FireEye Post Narrower-than-Expected Q4 Loss, But Revenues Fell
FireEye posted adjusted loss (excluding one-time items but including stock-based compensation) of $0.22 per share for fourth-quarter 2016, significantly narrower than the Zacks Consensus Estimate of a loss of $0.49 as well as the year-ago quarter’s loss of $0.73.
On a GAAP and non-GAAP basis as well, the year-over-year comparisons were favorable. On a GAAP basis, the company reported loss of $0.37 per share, while it had reported a loss of $0.87 in the year-ago period.
On a non-GAAP basis, FireEye posted loss per share of $0.03 compared with a loss of $0.36 in the fourth quarter of 2015. The quarter’s non-GAAP loss per share was also significantly narrower than management’s loss guidance of $0.16–$0.18 (mid-point: $0.17).
Revenues
FireEye’s top-line performance was quite a disappointment. The company’s fourth-quarter revenues of $184.7 million not only registered a marginal year-over-year decline for the first time ever but also fell short of the Zacks Consensus Estimate of $192 million as well as its own guidance of $187 million to $193 million (mid-point: $190 million).
The company determined several internal and external factors which impacted its overall top-line performance. Internal factors include a number of sales leadership vacancies, reduced sales capacity and release of several major innovations on a limited basis focused on a set of targeted customers only. From an external perspective, the company analyzed less in the sense of urgency in some buyers.
The company further revealed that dismal performance in the Asia-Pacific region was the main reason behind the underperformance. The performance in the Asia-Pacific region was mainly impacted by the company’s management challenges.
Billings decreased 14% to $221.8 million, below management’s guidance of $230 million to $250 million mainly due to all the factors mentioned above.
Segment-wise, Product revenues tanked 49.6% year over year to $33.6 million. Apart from the aforementioned factors, FireEye’s strategy of transitioning its business to subscription and cloud-based offerings from hardware offerings was the main reason for the decline in product revenues. Subscription and Services revenues, on the other hand, rose 27.9% to $151.1 million.
Nonetheless, FireEye continues to win large deals. Notably, the company closed 34 transactions with an individual value of over $1 million. The company also added 330 customers in the quarter. Moreover, its customer renewal rate remained above 90% during the quarter.
Operating Results
Adjusted gross profit increased 1.6% from the year-ago quarter to $132.2 million. Gross margin improved 120 basis points (bps) to 71.6%.
Adjusted operating expenses decreased 31.5% to $164.6 million. FireEye revealed that it managed to bring down its non-GAAP operating expenses on a year over year and sequential basis due to its sustained focus on cost optimization and productivity.
The company posted adjusted operating loss of $32.4 million, 70.6% narrower than the year-ago loss of $110.3 million. Moreover, FireEye revealed that its non-GAAP operating margin was -1%, compared with -28% in the fourth quarter of 2015. This marked the best operating margin performance by FireEye in its entire history.
Adjusted net loss for the fourth quarter was $35.9 million, compared with the year-ago net loss of $114.3 million. On a non-GAAP basis, the company reported net loss of $4.8 million compared with the year-ago quarter’s loss of $56.5 million.
Balance Sheet & Cash Flow
FireEye exited the quarter with cash and cash equivalents and short-term investments of approximately $935.7 million, slightly higher than $926.2 million at the end of the previous quarter. Accounts receivable were $121.2 million compared with $124 million at the end of the third quarter. During the year, the company used $14.6 million of cash for operating activities.
Guidance
FireEye provided a disappointing first-quarter outlook. For the quarter, the company anticipates revenues in the range of $160 million to $166 million (mid-point: $163 million). Billings are expected in the range of $130 million to $150 million. Non-GAAP operating margin is projected to remain in the band of -24% to -26% of revenues. The company expects non-GAAP loss per share of 26–28 cents (mid-point: 27 cents). Operating cash flow is likely to remain in the range of negative $30 million to negative $40 million.
For 2017, the company provided only quantitative guidance. FireEye expects billings and revenues to improve throughout the year, mainly in the second half. It further anticipates positive operating cash flow for the first time ever in 2017.
How Have Estimates Been Moving Since Then?
Following the release , investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.
FireEye, Inc. Price and Consensus
FireEye, Inc. Price and Consensus | FireEye, Inc. Quote
VGM Scores
At this time, FireEye's stock has a strong Growth Score of 'A', while its Momentum is lagging a bit behind with 'C'. However, the stock was allocated a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable more for growth investors than momentum investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.