Why FireEye Shares Are at All-Time Lows After Earnings (Hint: It’s Ugly)

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There is a saying that you should never say bad things about people (and companies). Apparently that does not count when it comes to FireEye Inc. (NASDAQ: FEYE). The cybersecurity company reported earnings and everything here is a story of promise rather than success.

Unfortunately, this company has lost its credibility and losing money this late in the data security game means that has been winning business because it has been willing to lose money. FireEye even reported a transition of its Chief Financial Officer role.

The long and short of the matter is that, despite past revenue growth and shrinking its losses, FireEye needs to start acting like a “real” public company and posting profits.

Fourth quarter revenue was $184.7 million. While consistent with the fourth quarter of 2015, Thomson Reuters was calling for about $191 million. FireEye’s adjusted net loss per share was $0.03 rather than the 16-cent loss Thomson Reuters was expecting (and better than the -$0.36 a year earlier).

Billings of $221.8 million were down 14% from the prior report a year earlier. and the non-GAAP gross margin of 74% is down from 75% a year earlier — and the non-GAAP operating margin of -1% was versus -28% a year earlier.

Mike Berry, FireEye chief financial officer and chief operating officer, showed in a quote that the company managed to come “within a few million dollars of positive non-GAAP operating income” and that the company generated positive cash flow. Perhaps it is too bad his enthusiasm was met with his resignation. Berry, who has been FireEye’s CFO since 2015, is leaving FireEye to pursue another opportunity.

Frank Verdecanna, FireEye senior vice president of finance and chief accounting officer, has been appointed executive vice president and chief financial officer.

David DeWalt, who became Executive Chairman of the Board when he stepped down as FireEye CEO in June 2016, has also resigned from the company.

For the first quarter of 2017, FireEye currently expects total revenues of $160 million to $166 million with billings in the range of $130 million to $150 million. It also sees an adjusted net loss per share of $0.26 to $0.28 per share and cash flow from operations of negative $30 million to negative $40 million. Thomson Reuters was looking for -$0.24 in EPS and $176.6 million.

For all of 2017, the company is targeting for billings and revenue trends to improve throughout the year, but that is with renewed organic growth taking place in the second half of 2017. At least the company is sticking with its stated objective of positive non-GAAP operating income by the fourth quarter of 2017 and that it expects to generate positive cash flow from operations for the full year (2017).

FireEye shares have proven to only make money for short sellers since mid-2015. This stock went north of $75 in 2014 but a history of losses only goes so far. Now try throwing in management changes and back-ended guidance that has been a disappointment and has to be trusted after breaking trust.

Maybe a drop of 18.8% to $10.53 in the after-after hours session sounds harsh. Now consider that its 52-week range is $10.87 to $19.63, and now consider that if this drop holds it would be an all-time low.

Things just don’t look good for FireEye, and how do you trust a company that keeps disappointing. Now you know why FireEye was listed almost a year ago as being one of 6 big companies with completely busted business models.

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Kevin Mandia, FireEye chief executive officer, said of the quarter:

Since mid-2016 we have focused on two strategic initiatives — rightsizing our cost structure and evolving our product portfolio — and we made great progress on both fronts in the fourth quarter. Non-GAAP operating losses narrowed by more than $50 million compared to the fourth quarter of 2015, and we generated positive operating cash flow in the fourth quarter. We are better positioned as a company today, with a solid financial foundation, more efficient operations, and expanded and updated product offerings. We will remain focused on our mission to relentlessly protect our customers as we continue to execute on our priorities in 2017.

We believe the innovations we introduced in the second half of 2016, together with the announcement of our Helix platform in November, will enable FireEye to transform security operations and lower security cost of ownership for organizations of all sizes. I believe that FireEye’s intense and dedicated pursuit of profitability and innovation will result in growth, enable us to better fulfill our mission to our customers, and allow us to provide the greatest value to our shareholders over time.