Cybersecurity firm FireEye, Inc (NASDAQ:FEYE) announced its second-quarter earnings on Thursday after the bell, sending FEYE stock down some 14% in after-hours trading.
The company’s disappointing revenue figures sent FireEye investors scrambling, worried that the firm was losing ground to bigger competitors in the increasingly crowded cybersecurity industry.
Despite the poor second-quarter figures, FireEye CEO Kevin Mandia was optimistic about the future, saying that the firm’s efforts to reduce costs were beginning to pay off and that some of FireEye’s latest products were helping to re-invigorate growth.
FireEye Earnings Rundown
FireEye reported a loss of 33 cents per share on revenue of $175 million, marking yet another disappointing quarter with poor revenue figures. Investors closely watched FEYE’s total billings, which came in below expectations at $195.4 million. For the full year, FireEye also failed to meet analysts’ expectations for revenue, guiding between $716 and $728 million.
Part of the reason that FEYE is struggling is that the company is in the midst of a shift from selling appliance-based protection to cloud-based solutions and subscriptions.
That means there is somewhat of a lag in sales figures that has hurt the company’s revenue in the short term, but the recurring subscription fees will be positive for the firm’s cash flow in the longer run.
However, the most troubling thing about FEYE stock is that the company has never managed to turn a profit. Despite the fact that the cybersecurity industry has ballooned over the past few years as more and more companies invest in comprehensive protection plans, FireEye has been unable to generate substantial margins.
Management has said it is looking to post profits in the coming quarters by cutting down on costs, but the firm’s position has made it very vulnerable in a space where competition is growing exponentially. Larger companies with higher margins have much more control over things like investment in R&D and pricing, giving them a competitive advantage over FireEye.
Bottom Line: FEYE Stock Is a Good Speculative Play
While this quarter’s results did very little to reassure investors that FireEye can turn things around, FEYE has the potential to be a good speculative play. There is far too much uncertainty to consider FEYE as a long-term bet, but the company could be scooped up by one of its competitors in the coming months.
The cybersecurity space saw a great deal of consolidation over the past year as big names like Symantec and Cisco bought up smaller firms in order to bolster their offerings. There has been a lot of chatter about FEYE being acquired in recent months; and at under $17 per share, it could make for a good speculative buy.
So far, FEYE management has shown little interest in selling the firm and many believe Mandia is against the idea , but there is still a possibility that a big name like Intel or IBM may be able to woo them into a sale.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
