Morningstar | Professional Services Spurs FireEye's 1Q; Maintaining $15 FVE
No-moat FireEye's first quarter showcased year-over-year revenue growth of 6%, driven by strong annual sales growth of 21% for professional services. Operating margin slightly increased to a loss of 30% compared with last year's loss of 31%; however, on a dollar basis, the loss increased by $2.7 million to $63.5 million. While we remain positive on FireEye's ability to capitalize on the need for strong cybersecurity professional services in the marketplace, concerns around the underwhelming growth in products, subscriptions, and support cause us to keep our fair value estimate of $15 per share intact. With FireEye shares trading in 3-star territory, we recommend narrow-moat Palo Alto Networks as an attractive investment opportunity in the cybersecurity market.Product, subscriptions, and support grew by 2.7% year over year to $170 million while professional services increased to $41 million in the quarter. Gross profit remained stagnant year over year at 66% while net loss per share improved by a cent year over year to a loss of $0.38 per share. FireEye experienced growth in network, endpoint, and email security and went through an extensive effort to reduce the quantity of products and simplify the portfolio offering and sales process. Management stated that demand for FireEye's Expertise On Demand exceeded their expectations, as customers require immediate assistance with threat prevention. While we believe this is an attractive part of FireEye's ecosystem, we expect competitors investing in machine learning and automated threat response capabilities, to supplement their professional services and consolidated security platforms, to impact the sustainable growth of FireEye's offering. Management increased its 2019 guidance for billings and cash flow from operations by $5 million for 2019 due to the first-quarter results while keeping the previous guidance for 2019 revenue and EPS static.
FireEye provides intelligence-based cybersecurity solutions that allow organizations to prepare for, prevent, respond to and remediate cyber attacks. The company's portfolio of cybersecurity products and services is designed to minimize the risk of cyber security breaches by detecting and preventing advanced, targeted and other evasive attacks, as well as enabling management of security operations, including alert management, investigation and response when a breach occurs. The company provides threat detection and prevention solutions, security orchestration, analytics and management solutions, threat intelligence subscriptions, on-demand and managed service subscriptions, and other services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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