Why FireEye Stock Dropped 17% in August

By Markets Fool.com

Image source: Getty.

Continue Reading Below

What happened

Shares of cybersecurity company FireEye (NASDAQ: FEYE) slumped 17.6% in August, according to data provided byS&P Global Market Intelligence. A mixed earnings report featuring the announcement of a major restructuring and slashed guidance gave investors second thoughts about the company's growth prospects.

So what

FireEye reported second-quarter revenue of $175 million, up 19% year over year but about $6 million below analyst expectations. Billings grew at an even slower 10% rate. FireEye, which was long richly valued due to its extremely high growth rate despite massive losses, is no longer growing very fast.

The company posted a non-GAAP loss of $0.33, better than the $0.41 loss reported during the prior-year period. The company has been taking steps to reduce costs, touting a $17 million reduction in non-GAAP costs during the second quarter. But with growth slowing, further cost-cutting will be necessary.

Continue Reading Below

FireEye now expects to produce between $716 million and $728 million of revenue for the full year, down from earlier guidance calling for between $815 and $845 million. The company announced a restructuring effort that will see non-GAAP costs reduced by another $20 million, accomplished in part by laying off a portion of its workforce.

CEO Kevin Mandia laid out the company's new strategy:

As we introduce the latest versions ofFireEyeproducts, improve sales execution, and continue to optimize our costs, I believe we will see steady improvement in our performance. We still have much work to do, but I am convinced thatFireEyehas the critical assets necessary for long term success, and that we are taking additional steps to achieve balanced growth and profitability.

Now what

When a growth company begins laying off employees and talking about "balanced growth and profitability," investors can be sure that the days of heady growth and stratospheric valuations are over. FireEye's market capitalization now sits at just $2.6 billion, down from more than $11 billion in early 2014.

If slow growth is the new norm for FireEye, the company will need to show that it can make progress toward achieving profitability. The company posted a GAAP loss of $539 million on $623 million of revenue last year, driven by heavy spending on sales and marketing. It remains to be seen how much the company can rein in that spending without sacrificing growth even further.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends FireEye. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.