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Why FireEye Was Down 17% in February

By Jon Quast - Mar 4, 2020 at 12:22PM

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Shorter contracts might actually be a good thing in the long term, but they caused the company to miss its billings guidance.

What happened

Shares of cybersecurity company FireEye (MNDT 0.88%) were down 17.2% in February, according to data provided by S&P Global Market Intelligence. Overall, it was a pretty volatile month for the stock, with both jumps and drops. An earnings beat and a rumored buyout from Cisco Systems provided nice pops in the price per share, while weak forward guidance and the overall market correction both contributed to the downside.

So what

FireEye began February by reporting fourth-quarter and full-year 2019 financial results, exceeding both revenue and non-GAAP earnings per share (EPS) guidance. Guidance had called for $224 million to $228 million in revenue and $0.03 to $0.05 in non-GAAP EPS. However, its Q4 resulted in quarterly revenue of $235 million and non-GAAP EPS of $0.07 -- good for 8% and 17% year-over-year growth, respectively.

A computer hacker wearing a hoodie sits before a laptop.

Image source: Getty Images.

The stock initially popped on these results before more detail and forward guidance brought it back down. FireEye's billings growth was weaker than its previous guidance. Management attributed the shortfall to a shorter average contract period for the deals signed during the quarter.

It's important to note that FireEye has two different kinds of products: hardware-based and software-based offerings. Shorter contracts hurt hardware-billings growth but actually help software-billings growth. In fact, longer contracts are discussed in the risk factor section of the company's SEC filings. And in the Q4 earnings call, CEO Kevin Mandia said shorter contracts were "both welcome and expected" now that it's focusing more on the software side of the business.

Even still, billings below guidance wasn't what investors were looking for. Revenue guidance also fell flat. FireEye is guiding for $935 million to $945 million in 2020, which is only 6% annual growth. The overall market correction sparked by COVID-19 fears further intensified the stock's decline.

Now what

Also in February, the stock jumped on a rumor that Cisco wanted to buy FireEye. Neither company has confirmed the rumor, and therefore investors should take this with a grain of salt. FireEye has been the center of buyout speculation before. But unless we hear it from FireEye, it's best to approach this cybersecurity stock with the mentality that it'll remain an independent company.

For now, investors need to realize that FireEye is in the middle of a transition. Before, it offered primarily on-premise cybersecurity solutions. Now the company is pushing off-premise cloud-based cybersecurity. In Q4, for the first time, on-premise products comprised less than half of FireEye's revenue, meaning that investors should keep their eyes on the cloud.

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