Why Is FireEye (FEYE) Up 8.3% Since Last Earnings Report?

It has been about a month since the last earnings report for FireEye (FEYE). Shares have added about 8.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FireEye due for a pullback? 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 catalysts.

FireEye Q1 Earnings & Revenues Surpass Estimates

FireEye reported first-quarter 2020 non-GAAP loss of 2 cents per share, which was narrower than the Zacks Consensus Estimate of 4 cents. The bottom line also improved from the prior-year quarter’s loss of 3 cents per share.

Revenues totaled $225 million, which increased 7% year over year and outpaced the consensus mark of $220 million.

This year over year upside was led by strong growth in Platform, Cloud Subscription, Managed Services and Mandiant Consulting services. Moreover, significant momentum in Mandiant Professional Services benefited the top line.

Quarter Details

Segment-wise, product, subscription and support revenues increased 2.5% year over year to $174.1 million and revenues from professional services rose 24.6% year over year to $50.6 million.

However, FireEye’s on-premise product and related business revenues decreased 11% year over year, reflecting a decline in the opening current deferred revenue balance for the segment. This stemmed from a fall in appliance hardware sales in 2016 and 2017 but is still realized due to the ASC 606 revenue accounting standards.

Quarterly billings of $170 million decreased 7% year over year. Disruptions related to the coronavirus pandemic negatively impacted billings by $10-$15 million.

The company expects the pandemic to affect contract length significantly, going forward.

Mandiant Professional Services performed well in the first quarter. Revenues from this segment grew 25% from the year-ago quarter.

Operating Results

Non-GAAP gross margin contracted 300 basis points (bps) year over year to 7%.

Non-GAAP operating loss was 1%, up 200 bps.

Balance Sheet & Cash Flow

FireEye exited the first quarter with cash and cash equivalents, and short-term investments of approximately $980 million, down from $1.04 billion at the end of the previous quarter.

The company also mentioned that it is positioned comfortably to pay $120 million in convertible debt on Jun 1.

The company’s cash outflow from operations was $24 million against an inflow of $40 million in the fourth quarter of 2019.

Guidance

In the wake of the pandemic, FireEye withdrew its billings and operating cash flow guidance for 2020 and refrained from providing the same for the second quarter.

For second-quarter 2020, FireEye anticipates revenues between $213 million and $217 million. The Zacks Consensus Estimate for revenues currently stands at $221.5 million, implying 4.71% growth from the year-ago quarter’s reported figure.

Also, an operating loss of 2-1% is expected.

A restructuring cost of $10-$15 million is expected in the second quarter.

Non-GAAP loss per share is expected to be 3-1 cents.

For 2020, the company now expects revenues of $880-$900 million, down from the previously guided $935-$945 million. FireEye also expects non-GAAP earnings between 3 cents and 7 cents, much lower than the previously expected range of 20-24 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -40.19% due to these changes.

VGM Scores

Currently, FireEye has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #2 (Buy). We expect an above average return from the stock in the next few months.

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