FireEye Stock Beats Earnings But Still Gets Crushed

FEYE StockFireEye Continues in a Downward Spiral

With so much talk of “the cyber” these days—reaching all the way to the American presidency, even—you’d think it would be a boom time to be in the cybersecurity business. After all, with accusations of election hacking and grid-takeovers, there’s definitely a fervor building up in the online security sector.

But, unfortunately for FireEye Inc (NASDAQ:FEYE), all this media buzz has hardly translated into success. FireEye stock is down 14.7% following a tumultuous year, even as its most recent earnings report beat Wall Street expectations.

The company reported a fourth-quarter net loss of $61.5 million, which amounts to $0.37 per share on revenue of $184.7 million.

Adjusting for stock-based compensation and other factors, FireEye stock registered a loss of $0.03 per share, well above analyst expectations of an adjusted $0.16 per share on sales of $191.0 million. Still, all this good news was not enough to ward off a steep decline in the stock price.

“We’ve clearly accelerated our path to profitability,” said CEO Kevin Mandia in an interview with MarketWatch ahead of Thursday’s earnings release. (Source: “FireEye’s year of transition ends with another stock plunge and yet more change,MarketWatch, February 4, 2017.)

What makes things even more dire for FireEye stock is that this is the second consecutive quarter during which the company beat expectations, and yet that hasn’t been enough to sway investors to think positively of the shares.

The company has also been subject to a number of big shifts in management. former CEO David DeWalt was replaced by Mandia in May. Mandia went on to make several large changes to the company, the first of which was a cost-saving trimming of 350 jobs, which led to the earnings beat last quarter in November.

But it seems that more departures are in store for FireEye’s future. DeWalt, after having taken over as executive chairman, is now leaving for good. He will be joined by CFO Mike Berry, who is exiting to “pursue another opportunity.” The new CFO will be Frank Verdecanna, current vice president of finance and chief  accounting officer. (Source: Ibid.)

Mandia’s appointment helped spur an uptick in the early goings, but that has since leveled out to a similar share price as to before he assumed leadership of the company. 2016, on the whole, saw FEYE stock fall 44%.

FEYE stock’s woes can largely be centered on slow growth rates for sales coupled with continued heavy losses. Take, for instance, the last three years. FireEye experienced a loss of $480.1 million in 2016, $539.2 million in 2015, and $443.8 million in 2014. The losses on their own are worrying enough for investors, but they were not supported by growth. The company went from 163.4% sales growth in 2014 to 14.6% last year.

And things do not seem to be heading the right direction in 2017. Besides Friday’s loss, the company also lowered its projections for the next quarter, further impacting FEYE stock.

FireEye projected a quarterly revenue of $160.0 million to $166.0 million and billings of $130.0 million to $150.0 million. Analysts polled by FactSet Research Systems Inc. (NYSE:FDS)  had expected a higher revenue of $176.8 million and billings of $186.9 million.

Mandia, for his part, puts some of the current FireEye woes on the restructuring. “I think there’s some factors that came out of some of the restructuring I did in regards to sales leadership,” he told MarketWatch. (Source: Ibid.)

Ultimately, FireEye has a lot of catching up to do if it wants to impress investors and reclaim its early post-IPO days when it was trading over three times as high as it is now. There’s definitely a market for cybersecurity software in this day and age. The question is: can FireEye capitalize?