FireEye's (NASDAQ:FEYE) stock tumbled more than 70% over the past five years as the cybersecurity company's growth slowed to a crawl. However, contrarian investors might still consider FireEye a deep value play, since the stock trades at roughly half its IPO price of $20 and just over two times its annual revenue. Let's dig deeper to see if this battered cybersecurity stock is finally bottoming out.

What happened to FireEye over the past five years?

FireEye was firing on all cylinders after its IPO in late 2013. Its threat detection tools received numerous accolades and awards, and it benefited from a surge in demand for cybersecurity services following a series of high-profile data breaches.

Security icons hover over a laptop keyboard.

Image source: Getty Images.

But FireEye's flaws appeared shortly after its IPO. The company diluted its own shares with a massive stock offering in 2014, its CFO abruptly quit in 2015, and its CEO resigned in 2016. Its revenue growth decelerated and it remained deeply unprofitable.

FireEye also faced tougher competition from Cisco (NASDAQ:CSCO), which bundled similar threat prevention services with its other hardware and software products, and higher-growth cybersecurity rivals like Palo Alto Networks.

Kevin Mandia, who took over as CEO in 2016, steered FireEye toward three primary goals: pivoting its core business away from on-site appliances toward subscription-based cloud services, expanding that ecosystem to lock in customers, and streamlining its business to improve its profitability.

Those grueling efforts gradually paid off, but replacing its appliance business with cloud-based services throttled its revenue growth, since on-site appliances generate higher revenue per customer. However, cutting costs lifted its non-GAAP operating margin into positive territory over the past two years:

Metric

2015

2016

2017

2018

2019

Revenue Growth (YOY)

46%

15%

5%

7%

7%

Gross Margin*

73%

73%

75%

75%

73%

Operating Margin*

(38%)

(21%)

(3%)

3%

1%

Source: FireEye annual reports. *Non-GAAP.

Will FireEye's prospects improve in 2020?

FireEye's revenue rose 7% annually to $225 million in the first quarter of 2020, beating estimates by $3 million, and its non-GAAP net loss narrowed by a penny to $0.02 per share, which also cleared expectations by two cents. Its non-GAAP operating margin rose two percentage points to -1%.

Those numbers indicated Mandia's long-term plan remained on track. Its higher-growth platform, cloud subscription, managed services, and Mandiant consulting services generated 53% of its revenue during the quarter and eclipsed its older appliance-based business. It expects that trend to continue through the rest of 2020.

FireEye estimates the COVID-19 pandemic only reduced its first-quarter revenue by "less than $2 million," but reduced its billings -- which fell 7% annually to $170 million -- by "about $10 million to $15 million." That's a red flag, since its billings include deferred revenue, a key benchmark of future demand.

A drop-off in billings indicates FireEye's revenue growth could decelerate later this year, but the company claims its deals were merely delayed instead of canceled. It also pointed out its billings growth is generally seasonally lower during the first quarter.

FireEye expects its revenue to decline 0%-2% annually in the second quarter, with a non-GAAP operating margin of negative 1%-2%. For the full year, it anticipates roughly flat revenue growth with an operating margin of 1%-3%. It withdrew its billings and operating cash flow guidance due to COVID-19, but its revenue forecasts suggest its billings growth will still decelerate throughout the year.

Still treading water instead of swimming forward

FireEye's growth could rebound after the crisis passes, but its slowdown during the pandemic is disappointing, especially since better-positioned cybersecurity companies like CrowdStrike -- which secures cloud-based services like Zoom Video -- are being buoyed by crisis-related tailwinds.

For now, FireEye remains a slow-growth company in a sector led by high-growth companies, so the bulls will likely still ignore the stock. A takeover bid could still boost its stock, but the latest buzz regarding a Cisco buyout died down over the past few months as the crisis forced companies to conserve cash.

Simply put, FireEye's downside might be limited, but it's merely treading water as many of its industry peers swim forward. Investors should stick with FireEye's higher-growth peers or diversified tech giants like Cisco instead of betting on this underdog's eventual recovery.