FireEye (NASDAQ:FEYE) has a big point to prove on Feb. 6, the day its fourth-quarter results will be announced. Questions have been raised about the cybersecurity specialist's ability to sustain its newly found momentum despite an improvement in its sales execution and the bottom line.

FireEye surprised investors at the end of October last year with an impressive set of results that easily surpassed expectations. The company needs to do the same  this time to boost investor confidence and sustain its recent stock price momentum.

Hand drawing upward-trending line graph.

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FireEye has solved its problems

FireEye has solved the execution challenges that were haunting the company last year and hurting its growth. The company is now witnessing an uptick in the customer count as well as deal activity. The count of $1 million-plus deals has shot up 10% in the first nine months of the recently concluded fiscal year, while new-customer additions have increased 8% over the same period.

Additionally, FireEye customers are signing longer deals with the company. The company's weighted average contract length stood at 28.6 months at the end of the third quarter after dropping to 27 months earlier in the fiscal year. All of this points toward a solid sales strategy that will eventually lead to stronger financial growth.

FireEye expects $0.05 per share in earnings on $216 million in revenue at the midpoint of its guidance. That compares favorably to the prior-year period's revenue of $202 million and EPS of $0.01, though there's a possibility that it could deliver a beat and raise once again.

That's because the company is witnessing stronger growth from fast-growing cybersecurity niches such as cloud security. Its cloud subscription and managed-services revenue were up 18% annually during the last-reported quarter, outpacing the overall revenue growth by a significant margin. Not surprisingly, the company has bolstered this segment through product development actions that focus on critical areas such as cloud-based email security.

For instance, FireEye has upgraded its email security with new features that will allow customers to protect themselves against potential impersonation and phishing. In fact, the company's cloud-based email security solutions have been certified as a part of the Federal Risk and Authorization Management Program (FedRAMP), which means that they can be used by government agencies.

This bodes well for FireEye, as the cloud-based email security market is expected to hit $1.1 billion in value in the next five years, according to Mordor Intelligence. So FireEye's focus on lucrative areas like this could pay off impressively in the long run.

Expect a nice bottom-line boost

FireEye is expected to end fiscal 2018 on a profitable note with adjusted earnings of $0.08 per share as compared to a full-year loss of $0.16 per share in 2017. What's more, analysts expect the company's earnings growth to go up a notch in 2019, calling for EPS of $0.19.

There are a few solid reasons why FireEye should be able to meet Wall Street's earnings expectations. First, the company's margins are increasing at an impressive pace thanks to the growing clout of high-margin segments such as cloud security. Its non-GAAP gross margin increased 2 percentage points to 76% during the third quarter, while operating margin was a record 7% as compared to nil in the year-ago period.

Next, it has been able to bring down costs thanks to its focus on driving efficiency and productivity-related gains. The company's operating expenses have declined substantially over the past year, and this has played a key role in its bottom-line improvement.

FEYE Total Operating Expenses (% of Quarterly Revenues) Chart

FEYE Total Operating Expenses (% of Quarterly Revenues) data by YCharts.

Looking ahead, FireEye's costs should keep coming down on the back of a higher proportion of recurring revenue. FireEye's annual recurring revenue run rate was $538 million in the third quarter, up 10% from the year-ago quarter. This means that 70% of FireEye's revenue is recurring, as it has pulled in $776 million in revenue over the past year.

As such, there's still a lot of room for FireEye to boost its recurring revenue base. Once that happens, the company's margin profile will improve further, since it costs less to service existing customers than it does to acquire new ones. Additionally, it is easier to cross-sell new products to existing customers, so that's another way FireEye can boost its top line while keeping costs in check whenever it launches any new feature.

So FireEye has all the ingredients needed to deliver a solid quarterly report and top that off with an impressive forecast, which would go a long way in giving the stock price a nice shot in the arm.

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