FireEye Inc (NASDAQ:FEYE) surged after the company reported strong second quarter results, as Kevin Mandia’s turnaround strategy continue to work. But there are several concerns which should be kept in mind if you are thinking to buy the stock on the back of the latest earnings report.
FireEye Inc (NASDAQ:FEYE) reported a loss of $0.40 per share on GAAP basis. Non-GAAP earnings came in at $0.04 better than the analysts’ forecast of $0.10 to $0.12 per share loss. Revenue in the quarter increased by 6% to reach $185.5 million, significantly better than the Street’s consensus of $176.4 million. The company had itself projected a loss of $0.10-$0.14 per share for the quarter. FireEye also increased its full fiscal 2017 revenue forecast. The company now expects sales of $734 million-$746 million, versus the previous guidance of $724 million-$736 million.
Despite the sterling second quarter results, analysts say that the cyber-security company is yet to solve its biggest problem: revenue growth. A 6% rise in revenue isn’t enough, given the growth trajectory of rivals. FireEye has spent a lot of money in order to expand its customer base, but revenue hasn’t increased much. As a result, FireEye announced a restructuring program and brought in Kevin Mandia as CEO. FireEye Inc (NASDAQ:FEYE) now has a goal to reach profitability and become cash flow positive. But giving up on expansion for recurring revenue and focusing on short term cash flows would dent the company in the long term, as almost all major cyber-security companies are growing their revenue and are in a better position to grow at a rapid pace. The company is also the worst performer in the industry when it comes to cash flows.
FireEye Inc (NASDAQ:FEYE) is also overvalued, according to several analysts. The stock has a rallied due to the reports which surfaced earlier this year, suggesting that FireEye could become a takeover target. But there are no chances to such a development anytime soon. Investors are also hopeful for a turnaround, which will take several months to say the least. Investors are counting on a surge in the growth of FireEye Inc (NASDAQ:FEYE) intelligence-based security analysis platform Helix, but the fact is the market is full of excellent alternatives to this tool. Therefore, the bad news is now baked in the current price of the stock.
The stock is up about 23% year-to-date.