FireEye Inc (NASDAQ:FEYE) operates in the most unforgiving terrain in software: computer security. Leadership changes like fashions, with new approaches replacing the old faster than Lady Gaga can do a clothing change. FireEye has been out of fashion, and in the six months since its last earnings disappointment, FEYE stock has lost roughly 6.75%.
That may be misleading, because since bottoming in mid-March, FireEye shares are up 16%, on hopes that its newest product, Helix, could deliver profits that eluded the company in 2016.
FEYE’s new product uses technology acquired in 2013 through Mandiant. Since announcing Helix in March, studies have shown the company receiving better press coverage, but the proof of any pudding is in the eating, and the company’s 2016 loss of $480 million, $2.94 per share, on revenue of $714 million, was distinctly unpalatable.
FireEye stock was falling as earnings approached.
That is because analysts expected the turnaround to take time. For the March quarter, analysts expected a loss of 26 cents per share, about $45 million, on revenue of $163.68 million. The hoped-for “whisper number” was the loss could be pared to 21 cents. Baby steps.
They didn’t get them.
FireEye Earnings: What a Quarter!
Instead of baby steps, FireEye stock delivered a big leap, a loss of 9 cents per share on revenue of $173.7 million. This compared with a loss of $155.9 million, 98 cents per share, and revenue of $167.97 million a year earlier. The company said it expected a loss of 10-14 cents per share for the second quarter on sales of between $173 million and $179 million.
It was, in short, a huge beat on both the top and bottom lines, as well as a beat on guidance. FEYE stock was halted at the close of trading, following a drop of 2% on the day, but it is expected to rise sharply once trading resumes.
As InvestorPlace contributor Josh Enomoto notes, the field is growing, and if the product is good, a buyer may be forgiven for snapping up a bargain. But FireEye stock needed a good quarter, as InvestorPlace contributor Chris Lau noted.
With Helix, a service combining many approaches from firewalls to event management, all accessed through a single interface, FEYE hopes it has found a long-term solution to its financial problems, and its clients’ security woes.
Helix and Continuous Guidance, also announced last month, mean FireEye is no longer a company that sells security appliances, installed at a company’s premises, but one that sells security as a service companies subscribe to. Instead of seeing client wins as one-time hits to the top line, analysts should see progress as a slower accretion of revenue over time.
The service approach goes directly against Proofpoint Inc (NASDAQ:PFPT), which has moved beyond archiving into security and has been delivering better stock performance than FEYE stock as a result.
FEYE Stock: Patience? What Patience?
A new product approach doesn’t just shift how customers view the company. The company is giving clients an option of having a partner handle their security, managing it themselves or doing it directly from FireEye. Re-sellers will be reduced to handling implementation issues and designing orchestration playbooks that detail how a client will handle issues.
In this new environment any good publicity helps, so when FEYE recently found a dangerous bug in Microsoft Word alongside Microsoft Corporation (NASDAQ:MSFT) it badly wanted to claim credit, but it was beaten to the punch by the McAfee unit of Intel Corporation (NASDAQ:INTC)
The dispute illustrates not just the importance of news and fashion to security companies, but the rapid advance of mainstream companies like Intel and Cisco Systems, Inc. (NASDAQ:CSCO) into the field. Beating both its peers and its betters is going to be difficult, no matter how hard FireEye works.
Real success may wind up being a buyout rather than a profit, and the first quarter could bring that day a lot closer for FEYE stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in INTC and MSFT.
