FireEye

FireEye Inc (FEYE): Hyper Growth Mode Engaged

Goldman, Sachs & Co. analysts Greg Dunham, Mark Grant, Frank Robinson Jamison Manwaring remains ‘Neurtal’ for FireEye.

Thursday night, FireEye Inc (NASDAQ:FEYE) reported positive preliminary 4Q13 results, now expecting $95-$100mn in billings and $55-$57mn in revenues vs. Goldman’s respective forecasts of $85.8mn and $53.6mn. Consensus revenues were $53.4mn. FireEye Inc (NASDAQ:FEYE) also announced that it acquired privately-held Mandiant for roughly $1bn in value (~90% stock, ~10% cash). Analysts expect Mandiant to add $150 in revenues to our revised organic FireEye 2014 forecast of $260mn ($410mn all-in), up from $249mn prior to the 4Q beat. Goldman raises FireEye’s price target to 12.5% on revised estimates and remain Neutral.

FireEye

Implications of FireEye earnings beat

Analysts are encouraged by the more than 11% billings beat in 4Q13 as it represents ~100% growth, consistent with 3Q13. FireEye has been able to maintain hyper-growth despite the larger base due in part to sales capacity investments coming productive alongside new product launches like the NX10000.

Analysts see the Mandiant transaction as a strategic deal that extends FireEye Inc (NASDAQ:FEYE)’s ability to detect and remediate advanced cyber threats. While roughly half of Mandiant’s revenues are Incident Response Services, they believe natural product synergies exist (i.e., combining Mandiant’s Endpoint Management Platform with FireEye’s MVX technology) and expect both entities to successfully cross-sell into their respective bases (~100 customers overlap today). They also expect the integration risk of Mandiant’s 500 customers and 500 employees to be minimized by the appointment of Kevin Mandia, Mandiant’s CEO, as COO of FireEye Inc (NASDAQ:FEYE).

Analysts’ $45, 12-month price target ($40 prior) remains based on a 10-year DCF analysis assuming FCF margins of 33% on $2.9bn in 2022 revenue.

Risks

Upside: Better sales force productivity; Downside: Execution risk in hyper growth mode, macro pressure, potential increases in competition.

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