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How FireEye’s Services Business Fared in 2Q17

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Sep. 8 2017, Updated 6:36 a.m. ET

Services sales up 15%

FireEye (FEYE), which originally relied on hardware sales for its revenues, has transitioned into a services-based business model. Its focus is to sell services on a subscription basis, as this leads to more recurring and predictable revenues.

In 2Q17, FireEye’s subscription and services sales rose 15% to $154.3 million, beating consensus estimates that called for revenue of $150.7 million in this division. FireEye’s subscription and services revenue grew faster than direct costs incurred in generating revenues in the latest quarter.

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Services’ gross margin

The cost of the subscription and services revenue was up just 1.0% in the latest quarter. As a result, the services gross margin rose 4.0% to 66%. The above chart shows FireEye’s services gross margin over the last several quarters.

Investors keep an eye on FireEye’s services business not only because it provides most of the company’s revenue but also because it is a highly competitive market. FireEye is battling Palo Alto Networks (PANW), SecureWorks (SCWX), Check Point (CHKP), and Cisco (CSCO) in the cybersecurity services market.

Revenue up 6% and loss narrows

Strong performance in FireEye’s services division provided a lift to both the company’s top and bottom lines despite product sales plunging 23%. Overall revenue for 2Q17 was up 6% to $185.5 million, exceeding consensus estimates that called for revenue of $176.4 million.

Adjusted EPS (earnings per share) loss narrowed to $0.04 from the year-ago EPS loss of $0.33, suggesting that the company’s cost control efforts paid off. Analysts were expecting EPS loss of $0.12.

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