Can FireEye Live Up to Earnings Expectations?

By Paul Ausick Updated Apr 27, 6:25PM EDT · Published Aug 5, 10:20AM EDT

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Network security firm FireEye Inc. (NASDAQ: FEYE) came public in late September last year at an IPO price of $20 a share, well above its prospective range of $15 to $17. It closed its first day of trading at $36, up 80%. In the past month, the stock has closed above $36 on just two days.

The share price collapse really got started when the company held a secondary offering on March 7 after the shares had hit a peak of $97.35 just two days before. The secondary included 14 million shares priced at $82, and less than half were being sold by the company. The share price fell off a cliff, hitting a bottom of around $26 in May.

The company is scheduled to announce earnings after markets close Tuesday, and the consensus estimate calls for an earnings per share (EPS) loss of $0.60 on revenues of $90.19 million. FireEye posted a net loss of $0.53 per share in the prior quarter and is expected to post a loss of $0.56 in the next quarter. Revenues are figured to rise though, from a fiscal year 2013 total of $161.55 million to $412.18 million.

Revenues are expected to be strong throughout the cybersecurity sector, and it is likely the competition that is weighing on profits. Last month Goldman Sachs put a Buy rating on FireEye with a price target of $42, and the analysts added Palo Alto Networks Inc. (NYSE: PANW) to the firm’s Conviction Buy list with a price target of $97. A third security provider, Proofpoint Inc. (NASDAQ: PFPT) was initiated as a Buy with a price target of $42.

The number of security threats to data seems to increase daily, and that should be good for FireEye’s business, as should its recent acquisition of cybersecurity firm Mandiant. But the firm has got to get operating margins up and stop burning through cash. FireEye reported about $440 million in cash and equivalents at the end of the first quarter, after its secondary offering. Between the September and December quarters of last year, cash and equivalents dropped by about $150 million. When FireEye reports late Tuesday, what will its cash position be? How much of that secondary offering cash is left?

The stock was trading up about 1.6% Tuesday morning, at $34.77 in a 52-week range of $25.58 to $97.35.

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About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.