EUR 850.00 For Business Accounts Only

Morningstar | FireEye's 2Q Results Give Us No Reason to Deviate from Long-Term Thesis; Maintaining $15 FVE. See Updated Analyst Note from 01 Aug 2018

FireEye reported its second quarter, with mixed results reaffirming our long-term thesis that FireEye remains in the midst of a long turnaround. We are maintaining our no-moat rating and our $15 per share fair value estimate. FireEye has come a long way, both financially and product-wise, in terms of reducing its reliance on sandbox offerings and becoming a multifaceted cyber security player. However, we continue to foresee issues to FireEye's path to profitability, even as management continues to execute effectively.

There were some notable wins in the quarter, with the prevailing sentiment being FireEye has transitioned from appliance-oriented to cloud and virtual solutions-based, resulting in more recurring revenue. Newer products, such as FireEye's email solution with its interoperability with Office 365, remain a highlight. Overall, we continue to believe the FireEye Security Suite and the Helix platform remain the keystones of the firm's overall strategy. In the quarter, FireEye added 274 customers, closed 37 deals greater than $1 million, with 95% of those purchasing more than one product, and Helix alone adding 75 customers.

The firm is simultaneously contending with slowing revenue growth (versus expeditious growth after the IPO) and bloated operating expenses, as the firm needs to continually spend on R&D and S&M to fund new product launches. FireEye is on a positive track, with the firm producing positive cash flow in the first half of the year and is expected to produce positive non-GAAP earnings per share for the full year. We give management credit for new product launches (Helix, endpoint, email, and so on), streamlining the firm's go-to-market strategy, and shifting expenses to low-cost labor markets, while reining in operating expense growth (S&M expenses were 61.5% of revenue in fiscal 2016 and we project them falling to 46% this fiscal year). Despite these improvements, we are still not modeling the firm to become GAAP-profitable until 2023.

The fact remains that FireEye began as a secondary solution to complement a customer's existing security suite which largely remains true today, to an extent. We view the firm's competitive positioning as lackluster, especially as rivals are attempting to service their customer's entire cyber security ecosystem. This leaves FireEye somewhat exposed as enterprises and SMBs consolidate their cyber security products long term. Overall, we see FireEye's shares as fairly valued today.