Unlike other cybersecurity stocks, FireEye (FEYE, Financial) has failed to live up to investors’ expectations this year as the stock has struggled on the back of a falling growth rate and dying takeover rumors.
Since 2014, FireEye has lost more than 80% of its value. FireEye has been a disappointing stock this year also, as it has missed its own revenue estimates in the past three quarters. Despite offering packages of next generation threat protection, the company is struggling to induce sufficient customers to compel scant resources to its virtual machine grounded platform.
On the other hand, through the first six months of the year, the company’s product business segment dropped 18% and trimmed $9 million out of top-line generated in the second quarter. However, the company’s subscription sales surged by over $25 million in the last quarter.
In contrast, FireEye’s foremost rival, Palo Alto Networks (PANW, Financial), is growing at much better rate, as its revenue generated from products escalated by 24% in the last quarter, together with a 62% surge in subscription revenue.
Recently, FireEye changed its strategy, shifting its focus from profit to growth. This is because the demand for the services offered by the company is not as strong as the demand for the services offered by Palo Alto.
As a matter of fact, the cybersecurity market is displaying no sign of decelerating growth, as the amount of data breaches are increasing with time. Furthermore, the cybersecurity market is projected to reach $202 billion by 2021, but it seems like FireEye’s closest rivals, Palo Alto and Cisco (CSCO, Financial), are well positioned to gain huge advantages from that rising trend.
Due to the heavy pressure from competition, FireEye’s sales escalated just 19% on a yearly basis, a drop of 15% compared to the previous quarter. Obviously, with the decelerating sales growth, the company’s net losses will amplify as well, as its substantial stock-based compensation expenses could prove unmanageable.
Final words
FireEye faces many headwinds going forward. The company’s revenue growth is slowing down at a rapid pace and is still reporting massive losses. Profitability seems to be a far-fetched dream for FireEye and the failed acquisition rumor paints a dark picture of the company’s future. As a result, I think the stock is overvalued.
Disclosure: No position.
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