FireEye stock gains after earnings, outlook beat

FireEye Inc. managed to hit financial expectations in an earnings report Wednesday afternoon, and shares gained in late trading, a rarity in a volatile security sector that has had a difficult time living up to high valuations this earnings season.

FireEye FEYE, +1.03%  reported a second-quarter loss of $72.86 million, or 38 cents a share, on revenue of $202.7 million, up from $191.7 million a year ago after adjustments for new accounting standards. After factoring in stock-based compensation and other effects, FireEye claimed a break-even quarter on an adjusted basis, and reported billings of — reflecting future business under contract — of $196 million. That performance beat analysts’ average expectations of an adjusted loss of a penny a share on sales of $201.5 million, with billings of $188.3 million, according to FactSet.

FireEye’s forecast for the third quarter also beat expectations, and the company slightly raised its full-year revenue forecast to a range of $825 million to $845 million from a range of $820 million to $830 million. FireEye believes it will report revenue of $206 million to $210 million and billings of $210 million to $220 million in the current quarter, with adjusted profit of a penny to 3 cents a share.

FireEye stock gained more than 1% in immediate after-hours trading following the release of the report, which would be considered a win in a security space that has been beset by big declines after slight misses for earnings or forecasts so far this earnings season. Security-software companies have seen rising valuations as data breaches receive more publicity and spark more fear in large companies, but growth rates don’t seem to be matching up.

“It’s a market where the valuations are too damn high,” FireEye Chief Executive Kevin Mandia said in an interview with MarketWatch ahead of the report’s release Tuesday, mostly referring to small startups aimed at specific problems.

Mandia suggested that there could be mergers in the space, combining companies with targeted products for a fuller offering.

“As you see consolidation start to happen, we’ll see growth start to pop back up” for the companies that survive, Mandia predicted.

“The more security vendors there are, the more the billings are going to be spread,” Chief Financial Officer Frank Verdecanna pointed out.

Verdecanna said that companies coming together to offer a more complete security offering would fit what FireEye’s sales staff is seeing in the field. Large companies are frustrated by having a variety of security vendors for different issues, he said, and have recently been looking to “consolidate with fewer and fewer vendors.”

That vision benefits FireEye, which has expanded its cloud-based security software offering to touch on many different security needs for businesses. A move toward single vendors for varied security needs would mean larger contracts for a business such as FireEye, and Verdecanna said they are seeing more million-dollar-plus deals.

“The growth will come, and over time accelerate,” Mandia said of security companies in general.

FireEye stock has increased 10.5% so far this year, as the S&P 500 index SPX, -0.10%  has increased 5.3% and the ETFMG Prime Cyber Security ETF HACK, +0.03%  has gained 16.9%.