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FireEye’s 3Q16 Cash Flow Presents a Source of Concern

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Dec. 4 2020, Updated 10:42 a.m. ET

FireEye’s cash, debt, and cash flows

So far in this series, we have looked at FireEye’s growth and new offerings, as well as the challenges the company faces in the rapidly growing and competitive cybersecurity space. With an ~$2 billion market cap, FireEye (FEYE) had ~$224 million in cash and equivalents in 3Q16.

FireEye had operating cash flow of -$21.5 million in 3Q16, compared to $27.5 million in 3Q15. The company had $733 million in debt on its books in the form of senior convertible notes.

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Despite its growing revenues, FireEye (FEYE) has yet to post a profit and positive cash flow. Mounting competition from peers like Cisco (CSCO), Symantec (SYMC), and Palo Alto Networks (PANW) is adding to the company’s concerns. In 3Q16, FireEye reported a loss of $0.75 per share compared to a loss of $0.88 per share in 3Q15.

FireEye spent close to 60% of its revenues in sales and marketing expenses, which was high when compared with these expenses’ 44% contribution in 3Q15. It also spends a significant amount of revenues on R&D (research and development), which benefits the company’s technological edge in the long run.

FireEye’s 4Q16 and 2016 expectations

In 4Q16, FireEye (FEYE) expects its revenues to range from $187 million–$193 million and its billings to range from $230 million–$250 million. It expects a gross margin 74% and a loss of $0.16–$0.18 per share.

For fiscal 2016, FireEye expects its revenue and billings to range from $716 million–$722 million and $828 million–$848 million, respectively. Its gross margin is expected to be 73%, with a loss of $1.14–$1.16 per share.

Investors who wish to gain exposure to the cybersecurity space can consider investing in the PureFunds ISE Cyber Security ETF (HACK). HACK has a portfolio of 32 stocks and invests ~5% of its holdings in FireEye.

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