FireEye plunges on earnings miss, CEO blames China cyber deals

Reuters News
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Posted: Nov 05, 2015 9:51 AM

By Jim Finkle and Abhirup Roy

(Reuters) - FireEye Inc <FEYE.O> shares lost a quarter of their value Thursday as the cyber security firm that was once a darling of Wall Street missed quarterly forecasts and cut its outlook, saying reduced Chinese hacking had hurt demand.

At least 11 brokerages cut FireEye stock targets, pushing the median target to $32 from $54.50.

Wall Street analysts and industry watchers said that they were skeptical of FireEye's assertion that a U.S.-China agreement to clamp down on hacking had hurt sales at a time when corporations are placing unprecedented attention on efforts to beef up security.

"This is an excuse for more tactical and execution problems," said Eric Johnson, dean of the Owen School of Management at Vanderbilt University.

"I’m not hearing of a widespread drop of attacks. Nor is China the only game in town that people are worried about," said Johnson, who advises big corporations on cyber security technology.

Shares of FireEye, which released quarterly results late on Wednesday, fell $7.16, or 24.6 percent, to $21.96 in morning Nasdaq trade. The drop knocked over $1 billion off the company's market capitalization.

It was also a record low for the stock that went public at $20 a share in September 2013, climbing about 80 percent in its trading debut.

In late September, U.S. and Chinese leaders announced a "common understanding" that neither government would knowingly support cyber theft of corporate secrets or business information.

While discussing results for the quarter ended Sept. 30, FireEye Chief Executive Dave DeWalt said the Beijing-Washington agreement was hurting sales, as were cyber deals between China and other nations.

"China is changing its game a little bit when it comes to so much brazen attack methodologies," DeWalt said. He added that change was "ultimately culminating in some peace treaties and some slowdown and softening in the threat landscape."

Analysts, though, said the blame lay elsewhere.

"We believe the miss was attributable to factors specific to FireEye, rather than a broader slowdown," said Piper Jaffray analyst Andrew Nowinski. "Investors should continue to exercise caution with regard to FireEye until execution improves."

Palo Alto Networks Inc <PANW.N>, Proofpoint Inc <PFPT.O> and Imperva Inc <IMPV.N> have posted strong results, underscoring the strength in cyber security spending, said FBR Capital Markets analyst Daniel Ives.

A spokesman for FireEye said he had no immediate comment on the stock move and analyst reaction.

(Reporting by Jim Finkle in Boston and Abhirup Roy in Bengaluru; Editing by Frances Kerry and Christian Plumb)