FireEye Plunged 25%: Are Analysts Saying Now Is The Time To Buy?

• Shares of FireEye Inc (NASDAQ: FEYE) plunged to a new 52-week low of $21.88 Thursday as shares lost nearly 25 percent of its value.
• FireEye reported a loss of $0.37 per share in its third quarter on revenue of $165.62, while analysts were looking for a loss of $0.45 per share on revenue of $167.14 million.
• FireEye fell well short of billings expectations in the quarter.

FireEye's stock peaked above $80 in February 2014 after its hot IPO. However, momentum quickly faded after the company began establishing a history of reporting poor quarterly performances or an outlook that fell short of expectations. FireEye's third-quarter release was no different.

FireEye's positioning within the cybersecurity market is well known. However, the question investors are asking on Thursday is if it is time to buy the stock at the never-seen before levels, or is there room for further downside.

Here are what some of Wall Street's top analysts are saying following the print.

Wedbush: Reputation Remains ‘Good,' Competitors Pose ‘The Biggest Threat'

Steve Koening of Wedbush commented in a note that FireEye's reputation for advanced threat detection remains "good" while its business is still "sound." However, the company has not transitioned "nearly quickly enough" to a cloud-based, subscription model.

Koening said FireEye continues to face competition from competitors that offer a "good enough" service with a lower entry price. The analyst noted that these offers are created a headwind for FireEye sales to SMBs and are also disadvantaging the company in enterprise deals where customers need to allocate new budget dollars for advanced threat protection, or "tuck" the purchases into existing budgets. The company did address these concerns in the quarterly release and said that it is re-architecting its core MVX engine.

Related Link: FireEye Has 'Darker Days' Ahead, Dan Ives Warns

Koening also pointed out that FireEye's product revenue of $60 million represented a 24 percent year-over-year gain, marking a "significant" deceleration from 32 percent in the second quarter and 66 percent in the first quarter. The company attributed the shortfall to "cooling in cybersecurity demand" due to fewer attacks from China, weak European execution, shorter contract lengths, and less outperformance in the US.

Finally, Koening noted that FireEye's fourth-quarter revenue guidance was about $13 million below prior implied guidance and an 18 percent year-over-year billings guidance growth was "similarly disappointing."

Shares remain Neutral rated with a price target lowered to $27 from a previous $32.

Barclays: As Much Downside As There Is Upside

Saket Kalia of Barclays commented in a note that Europe proved to be "the biggest culprit" for FireEye. The analyst noted that Europe underperformed, partially due to macro reasons and a growing sales force – though it is more likely the latter since the some of the company's peers said they are seeing strength in Europe.

Kalia said contract duration was also two months less than expected and contributed $6 to $8 million towards the billings miss. Meanwhile, the company's U.S. operations was in-line, but "less robust," reflecting lower emergency security spending.

Kalia also stated that billings of $211 million was short of his $229 million (and the Street's $227 million) estimate. The shortfall is a "big deal" for a company that has historically "blown this metric away" since its IPO.

Looking forward, the analyst is mid-teens billings growth into fiscal 2016 with a slowly declining rate from there through fiscal 2019 at which point the company is expected to show a profit. However, with "little long-term visibility," there appears to be "as much downside" to the stock as there is upside.

Shares remain Equal Weight rated with a price target lowered to $29 from a previous $39.

Morgan Stanley: Remain Sidelined Until Signs Of Stability Show

Melissa Gorham of Morgan Stanley commented in a note that FireEye's business is "ailing."

Gorham noted that it's "clear something has changed" at FireEye. However, what is "less clear" from the post-earnings conference call is the cause of deceleration in growth. Management cited internal factors (such as poor execution in Europe and shorter contract durations) and external factors (including slowing cybersecurity spending). According to the analyst, FireEye is suffering from a combination of both factors.

"Dealing with the longer-term impacts of a distribution channel that was built out well ahead of the level of demand, the extension of contract lengths seen last year and a relative lack of competitiveness in the mid-market were all chickens waiting to come home to roost," Gorham wrote.

From an outsiders' perspective, Gorham said security budgets are indeed "still growing well" even though the focus of the spending is changing. Moreover, the "knee jerk reaction" from Chief Security Officers to "refresh" their existing security-based technologies is turning into a longer-term effort to 1) improve the effectiveness of their products, 2) "better lock down" assets, and 3) secure new and growing vendors like cloud and mobile.

Bottom line, Gorham maintains a "positive view" on FireEye's efforts to expand its product portfolio and address a shift in changing. However, these changes lack the critical mass to offset the deceleration seen in the core threat detection business.

Shares remain Equal-Weight rated with a price target lowered to $26 from a previous $44.

FBR: ‘Throwing In The White Towel'

Daniel Ives of FBR & Co. commented in a note that he has remained "patient" during FireEye's "roller coaster ride" over the past 18 months. However, it is now apparent that the company's growth story has "run into a brick wall" given the "soft" third-quarter print and fourth-quarter outlook.

Ives said that even though FireEye delivered a 45 percent top-line growth in the third quarter with "relatively healthy" deal flow, the company is facing several execution issues, including Mandiant integration challenges while product issues are slowing down growth prospects heading into 2016.

Ives also added while FireEye is "blaming" its weakness on several issues, execution and product challenges are not fixable overnight and will "cause more pain ahead."

Shares were downgraded to Market Perform from Outperform with a price target lowered to $28 from a previous $53.