FireEye's Significant Challenges Despite its Growing Cloud Business
Since the publication of its second-quarter results one month ago, FireEye's (NASDAQ: FEYE) stock price is staying close to its 52-week low. The cybersecurity vendor reported revenue above expectations for the 10th quarter in a row, but lower margins and weak guidance disappointed investors.
Despite its revenue growth, FireEye is facing a difficult transition. Legacy activities, which consist of selling specialized security devices, are declining. But the company is trying to offset this trend with a growing cloud business. Let's take a look at the challenges associated with this transition.
Several years ago, FireEye had a distinctive business model in the cybersecurity landscape. Its specialization in dealing with advanced threats allowed the company to sell expensive hardware that customers hosted on their premises. But, due to the development of cloud computing, this offering has become less and less relevant. As an illustration, during the latest earnings call, management explained it was surprised by the drop in subscription and support revenue related to legacy appliances. Many small customers didn't renew their expiring appliance contracts and revenue from the product segment -- which includes the sale of on-premise solutions and their related services -- decreased 4% during the previous quarter.
Source Fool.com
