Analyst: FireEye Needs Cloud Subscription Growth

Cybersecurity software vendor FireEye Inc FEYE reported an earnings beat Wednesday but issued disappointing guidance.

The Analyst

BMO Capital Markets analyst Keith Bachman maintained a Market Perform rating on FireEye with an $18 price target.

The Thesis

FireEye's Q4 was mixed, as the company reported a billings beat but warned of a shortfall in Q1, Bachman said in a Thursday note. The 2019 billings guidance was about in-line with expectations, the analyst said. 

Cloud subscription revenue of $50 million trailed BMO's estimate of $52 million, and the 13-percent cloud subscription revenue growth figure is disappointing, Bachman said. The analyst sees only modest improvement in cloud subscription revenue growth in 2019 as well as in 2020, even as product revenue growth continues to decelerate.

On a positive note, the analyst said he views FireEye's operating margin and cash flow guidance as impressive.

Accelerating revenue growth along with steady profitability can only drive shares higher, Bachman said. 

BMO models 2020 billings growth of 7-8 percent and revenue growth of 7 percent.

"We believe that cloud subscription growth needs to accelerate to offset the slowdown in products for total revenues to reach double-digit growth rates," the analyst said, adding that BMO is staying on the sidelines until it sees progress toward 10-percent growth. 

The Price Action

FireEye shares were up 0.28 percent at $16.24 at the time of publication Friday. 

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