July 30, 2019 / 8:21 PM / 4 months ago

FireEye's surprise quarterly loss, disappointing forecast drag shares

(Reuters) - FireEye Inc (FEYE.O) on Tuesday reported a surprise second-quarter loss and cut its 2019 revenue forecast on non-renewal of subscriptions, sending its shares down 15%.

The company posted a 7.1% rise in operating expenses and a per share adjusted loss of 1 cent in the reported quarter, while analysts were expecting profit of a cent, according to Refinitiv data.

“The higher costs expected and product weakness make FireEye’s road to profitability all the more challenging against peers that are growing at faster rates,” Morningstar analyst Mark Cash said.

Although, FireEye has been pivoting to a subscription-based model from selling hardware boxes used to detect malicious software to boost its revenue and profit margins, so are its peers with greater success.

Bigger rival Palo Alto’s services revenue, which includes revenue from contract-based subscriptions for its security offerings, surged 28% to $448.2 million in its latest reported quarter.

FireEye Chief Financial Officer Frank Verdecanna blamed the revised forecast on expirations of subscriptions.

“While many of our large customers refreshed and even expanded their deployments with fifth-generation appliances over the past several quarters, many smaller customers allowed their subscriptions to expire without purchasing new hardware,” Verdecanna said in a post earnings call with analysts.

FireEye lowered its 2019 revenue outlook and now expects it between $865 million and $875 million, compared to its prior forecast of $890 million to $900 million.

It expects to breakeven or report adjusted profit of 2 cents per share and revenue between $217 million and $221 million in the third quarter. Analysts were expecting 7 cents of profit on revenue of $228.4 million.

Revenue from subscription and services rose about 4% to $174.1 million in second quarter, above estimates of $169.8 million, while billings of $221 million were also better than estimates of $214.4 million.

Billings include revenue recognized plus the change in deferred revenue and is an important indicator of the health of a company’s business.

Total revenue rose 7.4% to $217.6 million, beating estimates of $215.2 million.

Reporting by Akanksha Rana in Bengaluru; Editing by Shinjini Ganguli

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