Shares of cybersecurity company FireEye (MNDT -0.02%) are plunging today after the company announced massive changes to its business. In short, it's selling some of its operations, buying back stock, and even changing its name to Mandiant. All of this change makes it hard to know what to expect from this company, which probably explains why the stock was down 15% as of noon EDT.
Private equity firm Symphony Technology Group is buying the FireEye Products business (which comes with the FireEye brand name) for $1.2 billion in cash. In conjunction with this announcement, FireEye management also approved a plan to repurchase $500 million in its stock. This buyback program doesn't have an end date; shares can be bought back anytime at management's discretion.
Now, FireEye will rebrand as Mandiant and focus on the Mandiant Solutions side of its business. For perspective, the FireEye Products side of the business accounted for more than half of the company's revenue in 2020, but revenue for this segment declined 3% year over year. By contrast, Mandiant's revenue grew over 20% year over year, making it seem smart to lean in with this side of the business. That said, the FireEye Products segment generated operating income of almost $28 million whereas the Mandiant segment had an operating loss of almost $183 million.
On one hand, management is spending a lot on sales and marketing to grow the Mandiant side of the business, so net losses are to be expected. But FireEye Products also had a better gross-profit margin in 2020: 77% versus 48% for Mandiant, according to generally accepted accounting principles (GAAP).
But management expects Mandiant Solutions to improve. Revenue is expected to have a 20% compound annual growth rate (CAGR) between now and 2025. By then, software-as-a-service revenue is expected to comprise 60% of the revenue mix (compared to around 50% for this segment today), and its adjusted gross-profit margin is expected to improve from 61% today to 65% by 2025.
In summary, FireEye -- now Mandiant -- is changing a lot, and it's hard to fully appreciate what this company will look like. Management is obviously upbeat, but it might take a few quarters before shareholders can understand and get behind this new vision for the company.