It has been about a month since the last earnings report for FireEye (FEYE - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is FireEye due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FireEye Reports Q4 Results
FireEye reported fourth-quarter 2018 earnings of 6 cents, surpassing the Zacks Consensus Estimate of 5 cents, and increasing 50% year over year.
Revenues totaled $218 million, which increased 6% and outpaced the consensus estimate of $216.5 million.
Notably, the company’s fourth-quarter performance reflects positive effects of its turnaround efforts, which include shifting the business model to a subscription-based one.
While fourth-quarter 2018 EPS and revenues beat estimates, disappointing first-quarter 2019 guidance dragged down shares. The company expects adjusted loss of 2-4 cents for the quarter. The Zacks Consensus Estimate for earnings is pegged at a penny.
Shares fell 0.3% at the close of trading session yesterday and are down more than 9% in pre-market trading. The stock has gained 30% in the past year, underperforming the industry’s 38.2% rise.
Product, subscription and support revenues (82.2% of total) increased 4.7% year over year to $178.8 million.
Further, segregating, Product and related subscription, and support revenues rose 3% year over year. Increase in subscriptions more than offset the decline in appliance hardware sales.
The introduction of subscription pricing model for network, email and Endpoint security led to increase in subscription billings, which aided growth despite an 11% decline in appliance hardware sales in the fourth quarter, and a 10% decline in 2018.
Cloud subscriptions and managed services rose 12%, reflecting strength in managed defense, standalone threat intelligence, Helix subscriptions and cloud email solution.
Revenues from Professional Services (17.8%) were up 11.2% from the year-ago quarter to $38.7 million.
Additionally, FireEye closed added 354 new logo customers in the fourth quarter, up 19% year over year.
The company’s customer retention rate was around 90%. Management noted that the company added more customers in the reported quarter compared with the year-ago quarter. Notably, it generated annual recurring revenues of $553 million, up 9% on a year-over-year basis.
Non-GAAP gross margin contracted 100 basis points year over year to 75%, but was within the guided range of 75-76%.
Non-GAAP operating margin was 5%, flat year over year.
Higher cloud hosting costs, increased sales and marketing expenses, given the rise in sales activity, higher R&D expenses due to more hiring in engineering to support new product roadmap and innovations, affected margins. This was partially offset by lower payroll taxes.
Balance Sheet & Cash Flow
FireEye exited the fourth quarter with cash and cash equivalents, and short-term investments of approximately $1.12 billion, up from $1.09 billion at the end of the previous quarter.
During the quarter, the company’s cash flow from operation was $18 million compared with $21.9 million in the third quarter.
For first-quarter 2019, FireEye anticipates revenues to be between $208 million and $212 million. The midpoint, at $210 million, is lower than the Zacks Consensus Estimate of $211.5 million.
Billings are projected in the range of $170-$180 million. Non-GAAP gross margin is anticipated to be 74% and non-GAAP operating margin is estimated in the band of negative 3% to negative 1%
For 2019, the company estimates revenues in the range $880-$890 million. The midpoint, at $885 million, is lower than the consensus estimate of $889 million.
Billings are projected to be $910-$930 million.
Non-GAAP operating margin is expected in the band of 5-6%.
FireEye forecasts non-GAAP earnings to be 17-21 cents per share. The midpoint, at 9 cents matches the Zacks Consensus Estimate.
The company expects continued growth across network, email and endpoint security. Moreover, management is extremely bullish about the launch of Expertise On-Demand, which it expects “to have a pretty significant monetization stream on top of Helix as well.”
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.81% due to these changes.
At this time, FireEye has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, FireEye has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.