Imperial Capital Downgrades FireEye To In-Line Citing Weaker Billings Outlook

Although FireEye Inc (NASDAQ: FEYE) continues to be a leader in advanced threat detection, Imperial Capital’s Michael Kim believes there are greater near-term challenges and business risks, driven by industry shifts and organizational changes.

Kim downgraded the rating on the company from Outperform to In-Line, while lowering the price target from $25 to $15.

Restructuring

Kim mentioned management is in the process of changing FireEye’s sales leadership, both in the EMEA and worldwide, while also planning to reduce headcount by 300-400, representing 10 percent of the employees. The analyst believes this could be “disruptive to sales productivity and operational execution.”

Kim expects investors to remain on the sidelines until management is able to deliver more consistent financial results and revive growth from FireEye-as-a-Service (FaaS), incident response services and new products FY17, while also remaining on track to achieving sustained profitability.

Weak Billings

Kim also noted the “recent deceleration of FaaS, which management attributed to the lack of certain features, in particular the ability to leverage alerts from customers’ other security products.”

With expanded threat coverage, the analyst expects stronger FaaS adoption, although visibility continues to be limited due to flat sequential product subscription billings in 2Q16.

The 2H16 and FY17 estimates have been lowered to reflect FireEye’s lower than expected billings during 2Q16 and a flat billings outlook for 2H16.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!