FireEye’s Bottom Line Narrowed despite Fall in Expenses
Why FireEye Fell by 14.2% after 3Q15 Earnings
Operating analysis
FireEye (FEYE) reported that the cost incurred from generating revenue was $61.9 million in 3Q15 compared to $44.9 million in 3Q14, a decrease of 2.0 percentage points in cost margin. This resulted in an increase in gross margin of 62.6% in 3Q15 compared to 60.7% in 3Q14 on a non-GAAP basis. FireEye has reduced its operating expenses to a large extent, which has reduced its expense margin by 37.4 percentage points. The majority of the cost reductions came from sales and marketing of $117.1 million in 3Q15 compared to $111.6 million in 3Q14, an absolute increase of 5.0%, but a relative decline of 27.0%. That in turn increased the operating margin to negative 74.4% compared to negative 113.8% in 3Q14, an increase of 39.3% in operating margin on a GAAP basis.
Non-core expenses were high
Despite the significant change in operating margin, FireEye could not make any value addition for its shareholders due to a rise in non-core expenses. Expenses such as stock-based compensation constitute 35% of total revenue, followed by amortization of intangible assets at 7% of total revenue in 3Q15. Had these expenses been lower, operating margin, and thus the bottom line, would have improved. On a non-GAAP basis, operating margin came in at negative 32%.
Apart from expenses, the company undertook convertible senior notes worth $697.5 million for which the company must pay interest of $8.6 million. That has further narrowed the bottom line to $135.5 million in 3Q15 compared to $120.0 million in the corresponding period last year, a decline of 12.9%. However, net margin has improved by 23.3% with negative 81.8% for 3Q15 compared to negative 105.1% in the same quarter last year on a GAAP basis. Non-GAAP net margins stood at negative 34.3%.
Loss per share was negative $0.88 in 3Q15 compared to negative $0.83 in 3Q14 on a non-GAAP basis, whereas non-GAAP loss per share stood at negative $0.37 compared to negative $0.51 in the corresponding quarter last year.
The ISE Cyber Security ETF (HACK) has a portfolio of 32 stocks, out of which Check Point Software (CHKP), Fortinet (FTNT), and Cisco Systems (CSCO) constitute 4.1%, 5.0%, and 4.3% of the ETF, respectively.
Browse this series on Market Realist:
