- By Naman Shukla
I have been bullish on FireEye (FEYE) for quite some time. I recommended buying FireEye multiple times over the last few months and the stock, on average, was up —…% until I recently suggested investors to sell it and book profits.
While I am still bullish on the cyber security industry, FireEye is facing several concerns that may keep a lid on the stock price for the time being. Hence, investors should watch it from the sidelines and wait for a better entry point.
The intrinsic value of FEYE
Declining sales growth
In the most recent quarter, FireEye’s billings rose —‘% on a yearly basis to $–86 million, which surpassed estimates by approximately $–… million, mainly due to rising demand for the company’s prevention solution based on cloud, FaaS platform, and its e-mail protection solutions. Although increase was high, it still signifies a slowdown from around 55% billings growth that the company reported in the year-ago period.
FireEye’s top-line surged ‘4% to $–68 million, but the company failed to beat analyst estimates by almost $4 million because of a greater mix of periodic product subscriptions, which are acknowledged over an extended period of time. On the other hand, the company’s guidance for sales growth in the range of —–% to —6% for the next quarter entirely missed prospects for ‘–% growth.
The company also anticipates this year's sales to increase —5% to ‘…%, which is lower than the analyst outlook of ‘‘% growth and characterizes a slowdown from 46% growth in the previous year.
While FireEye’s sales growth is continuously moving downward, other major players such as Cisco (CSCO) are moving onward with belligerent acquisitions and shoving tactics. Cisco’s acquisitions of ThreatGRID, Sourcefire and many other security firms improved its security revenue by ––% on a yearly basis to $46— million.
FireEye anticipates next quarter’s top-line and billings in between $–78 million and $–85 million and $—…… million and $—–5 million, respectively. The company expects an adjusted loss in the range of ‘8 cents to 4… cents per share.
Apart from this, more significantly, the company reduced its full-year —…–6 top-line estimate to a range of $78… million to $8–… million, down from its previous estimate of $8–5 million to $845 million. The company’s management also detailed that the deficit was due to an unexpected shift to SaaS subscription sales, which decreases the appreciation of top-line equated to product-based sales.
Given FireEye’s valuation, the company’s slowing growth will not go down with Mr. Market. While my bullish stance has resulted in great profits in the past, I think investors should stay away from FireEye for now due to the factors mentioned above.
This article first appeared on GuruFocus.
The intrinsic value of FEYE