Thursday, October 9, 2014

* FireEye (FEYE) - Incredible Charts Show Huge Risk and a Firm Like No Other

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There's huge risk in FEYE with contradicting good news, bad news and a huge bet on R&D. Let's look at five charts to understand.

DISCLOSURE: The Hedge Fund is Short FEYE Shares

Revenue (TTM)
So here's the good news... revenue is busting higher up from $83M (ttm) to now over a quarter billion (ttm).

Gross Margin %
And the bad news... gross margin % has been dropping as revenue has been increasing.  This is a huge measure to check with growth companies.  The bet is that these firms can maintain high gross margins as revenue expands.  This does not seem to be the case with FEYE (for now).

Net Income (TTM)
The company has never produced a profit over a trailing-twelve-month period, and that loss has grown from $36M to now over a quarter billion dollars. The firm has more in losses than it does in revenue.

Research & Development / Operating Revenue
FEYE is pouring money into R&D, spending nearly $0.50 of every dollar in revenue into it.  If you're long FEYE, this is the bet you're making.  When it comes to R&D, there's FEYE... and then there's everybody else.

Revenue vs R&D
If we take the two extremes in FEYE, which are revenue growth (one year) on the x-axis and R&D / Operating revenue on the y-axis, we can see quite clearly how different this firm than every other peer.

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This is trade analysis, not a recommendation.

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1 comment:

  1. Nice post.
    Services - which makes up a substantially larger portion of FEYE's total revenue post-Mandiant - tend to have lower margins than HW/SW sales. Margins should stop declining shortly.
    Net income trends are interesting; investors should also look at the extent to which they're actually burning through cash. (or not.)