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What to Expect From FireEye’s Q2 Results

By Harsh Chauhan - Jul 29, 2017 at 3:21PM

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Will FireEye's upcoming results help it sustain its impressive momentum?

FireEye (MNDT 0.09%) received a tremendous boost back in May after the company released better-than-expected results and followed that up with a strong guidance. Not surprisingly, investors in the cybersecurity specialist are pleased this year as they are currently sitting on gains of over 33%.

The company is set to release its second-quarter results after the market closes on Aug. 1. Will FireEye's rally continue?

A hacker in a hoodie.

Image Source: Getty Images

The bottom line will get better

Wall Street doesn't expect any growth in FireEye's revenue, forecasting $176.4 million for the second quarter. However, investors should note that analysts have been forced to bump up their estimates -- as they were originally expecting  $172.7 million in revenue -- thanks to FireEye's top line guidance of $173 million to $179 million.

The biggest improvement is anticipated in the bottom line. FireEye's adjusted loss is expected to drop to $0.12 per share during the second quarter as compared to the year-ago loss of $0.33 per share. This anticipated improvement in the bottom line can be attributed to the growing contribution of subscription and services revenue to FireEye's overall business.

For instance, FireEye's subscription and support revenues was up almost  12% year over year during the last reported quarter, while product revenue was down almost 30%. The jump in the subscription business helped the cybersecurity company reduce its sales and marketing expenses to just 54.6% of revenue, from 73.2% in the prior-year period.

Looking ahead, FireEye's subscription business will gather more steam in the second quarter. Its non-GAAP operating margin is expected to come in at a negative 9%-10% of revenue. By comparison, this metric was deeper in the red at negative  28% in the second quarter of 2016.

What next?

FireEye's push toward profitability should gain more ground as the year progresses, thanks to the growing traction of its subscription business after the launch of its new services. In recent months, the company has bolstered its product line-up by launching an integrated cybersecurity platform that combines analytics services and threat prevention into one interface.

The combination of anti-virus modules and next-gen firewalls into a single scalable platform, known as Helix, will help FireEye tap a wide variety of customers ranging from small start-ups to bigger corporate entities. This opens up a big opportunity in the security-as-a-service space that's expected to grow at an annual pace of 19% until 2020, as per TechNavio's estimates.

But more immediate gains for FireEye will be driven by its recently launched cloud and virtual end-point security products that use artificial intelligence (AI) to automate threat detection. This new platform will be available from the third quarter of 2017, and it could prove a hit with customers as it includes intelligent ransomware protection.

Ransomware protection is a hot commodity right now after the WannaCry ransomware attack affected a huge number of computers across hundreds of countries. This was quickly followed by the Petya ransomware attack. Corporate entities and governments have been on their toes after these attacks, which isn't surprising as cyber-risk modeling company Cyence puts the losses of the WannaCry attack itself at $4 billion.

Unsurprisingly the spending on ransomware protection is set to go up, with Markets and Markets putting the potential size of this market at $17 billion by 2021. Therefore, FireEye is pulling the right strings to boost its business both in the short- and long-run, setting itself up to sustain its impressive momentum on the stock market even after gaining strongly so far this year.


Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends FireEye. The Motley Fool has a disclosure policy.

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