FireEye's (NASDAQ:FEYE) fourth-quarter report is now out, and investor focus is on the company's key strategic moves to get to profitability and growth. The stock hasn't been kind to investors, losing 75% over the last two years.
With a year of transition behind the company, let's review some of the key metrics that might show that FireEye is moving back in the right direction. Stable gross margins, increasing deferred revenue, lower than expected operating expenses, and two other notable numbers demonstrate that FireEye's actions are starting to pay off.
Subscription growth +38% and product growth -30% year-over-year
FireEye is in the transition of moving its business and customers to the cloud. While product revenue has been on a steady decline, the company's subscription growth for 2016 more than makes up for it. Subscription revenue added $155.9 million in 2016 and product revenue only declined $64.7 million for the same period. This growth in subscription revenues combined with over a 90% customer retention rate makes FireEye's business more predictable, which helps the company to better plan its expenses and forecast revenues.
Stable 74% gross margins
Even as FireEye continues the transition to a subscription based model, the company has been able to keep its gross margins stable. This shows that despite the challenges over the last several years FireEye's underlying business is a good one, and that customers are willing to pay recurring costs for a valuable service. Additionally, the non-GAAP gross margin for the subscription business is higher at 77% than the non-GAAP gross margin for product sales at 64%. As more of the revenue becomes subscription based, this will further improve overall gross margins for the company.
24% growth in deferred revenue
With a subscription based revenue model, revenue is recognized as customers make monthly payments. Additionally, the company accounts for future monthly payments through the end of the contract period as deferred revenue. When the company adds customers and extends contracts, deferred revenue goes up. This metric will become more important to watch as the company continues its transition to subscription based cloud services. A 24% increase shows the progress of FireEye's transition to subscription-based revenue.