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FireEye Sees Profits In 2017 Amid Key Subscription, SaaS Transition

FireEye ( FEYE ) delivered a lofty promise Tuesday — profitability in 2017. The No. 7 cybersecurity firm (by market cap), FireEye hasn’t been in the black yet. But FireEye’s transition to a software-as-a-service subscription model could de-emphasize the competitively pressured appliance market, a William Blair analyst said Wednesday — a day after FireEye unveiled its plans and gave its profit forecast at its annual analyst day. FireEye stock was up 1% in afternoon trading on the stock market today , after earlier rising 10%. Shares fell 4.6% Tuesday despite the guidance. On Wednesday, Piper Jaffray analyst Andrew Nowinski upgraded FireEye stock to overweight from neutral, and was among at least four analysts to boost their price targets. “We believe FireEye can successfully transition to a (SaaS) model,” Nowinski wrote in a research report. “We believe FireEye is well-positioned to execute this transition due to the company’s best-in-class intelligence gathering capabilities. “No other vendor can capture a complete intelligence package like FireEye, since they lack the Mandiant and iSight capabilities.” By 2020, subscriptions and SaaS offerings will comprise 75% of total billings, FireEye executives promised Tuesday. On that path to profitability, FireEye curbed its 2016 loss expectations to $1.20-$1.27 per share, ex items. The company also slashed its capital 2016 expenditures expectations by $15 million to $35 million. Long term, FireEye expects to boost its international sales from 30% of total revenue in 2015 to nearly 50% by leveraging third-party distributors like Westcon, a key distributor that helped scale Palo Alto Networks ’ ( PANW ) international revenue, Nowinski wrote. Shifting From Core Appliance As it transitions to the “more defensible” subscription and SaaS model, FireEye is de-emphasizing its appliance offerings. Combined, FireEye’s four core appliance products comprise only 27% of billings, William Blair analyst Jonathan Ho wrote in a report. “Instead, the company sees growth in new business lines such as FireEye-as-a-Service, Email Threat Prevention, Threat Analytics Platform and Mobile Threat Protection, which appear more defensible than the core business,” he wrote. Guidance suggests that FireEye can achieve profitability while still investing in these growth areas, Ho said, retaining his outperform rating on FireEye stock. But Dougherty analyst Catharine Trebnick questioned whether FireEye can deliver on its subscription and SaaS goals given tough comparisons. In 2015, subscription billings jumped 42% year over year. “This was largely driven by unattached subscription growth of 64% year over year, while attached grew at 29% year over year,” she wrote in a report. For 2016, FireEye guided to 70% unattached subscription growth. Excluding the iSight and Invotas acquisitions, however, that signals only 26% organic growth. “The company needs products from this section to be the leading edge of growth,” she wrote. “Looking beyond 2016, the company’s to-be-released advancements may be able to accelerate this figure.” Trebnick retained her neutral rating “until we can observe meaningful progress trickle down into the field.” Turning On The Cash Spigot FireEye expects its first profitable quarter in Q4 2017, and its first profitable year in 2018. Pacific Crest analyst Rob Owens, however, questioned the logic of transitioning both profit and product-mix simultaneously. “We believe a simultaneous mix shift and profitability initiative create incremental risk, particularly given recent execution,” he wrote in a report. But, he noted, the product shift should give more visibility into FireEye’s revenue stream. In 2015, FireEye-as-a-Service delivered triple-digit customer growth, reaching a $100-million run rate. FireEye now has 363 FaaS customers, up 101% and comprising 8% of the total 4,400 customers, FBN analyst Shebly Seyrafi wrote in a report. He sees “ample headroom for further penetration” in the FaaS market. About half of FireEye’s customers use multiple families of products, Trebnick noted separately. Seyrafi boosted his price target on FireEye stock to 25 from 18 and retained his outperform rating.

FireEye Curbs 2016 Loss Expectations, But Stock Still Tumbles

FireEye ( FEYE ) curbed its loss expectations for 2016 by a nickel at the midpoint of its guidance range as the cybersecurity firm slashed its capital expenditures view by $15 million, but its shares still fell. FireEye stock was down 2.5%, near 18, in afternoon trading on the stock market today , after shares had risen for nine straight trading days. Shares edged up last week during the cybersecurity RSA Conference in San Francisco. At the conference, FireEye announced a partnership with agent-less vendor ForeScout Technologies and unveiled an endpoint exploit-protection product. And its $275 million  iSight Partners acquisition is already bearing fruit, FireEye executives told IBD. Tuesday, FireEye cut its 2016 capital expenditures view to $35 million vs. its earlier guidance for $50 million. FireEye sees $1.20 to $1.27 losses per share ex items, trimming earlier views for $1.25 to $1.32. FireEye reiterated sales guidance for $815 million to $845 million, which would be up 33% vs. 2015. FireEye retained its billings ex items guidance for $975 million to $1.055 billion. The consensus of 34 analysts polled by Thomson Reuters expected $829.9 million in sales and a per-share loss ex items of $1.30. Positive cash flow is still expected to come in at $70 million to $80 million, FireEye said. The updated guide comes as FireEye kicks off its 2016 analyst briefing. IBD’s 25-company Computer Software-Security industry group, which ranks a lowly No. 177 out of 197 groups, was down 1% Tuesday afternoon. FireEye stock has a low IBD Composite Rating of 17 out of a possible 99. Verisign ( VRSN ), Palo Alto Networks ( PANW ) and Check Point Software Technology ( CHKP ) stocks lead the group with CRs of 84, 79 and 73, respectively.

Apple Customers Hacked In First Known Mac Ransomware Blitz

Hackers targeted Apple ( AAPL ) Macintosh users over the weekend in what No. 2 cybersecurity firm Palo Alto Networks ( PANW ) believes was the first successful ransomware scheme on the OS X platform. Ransomware attacks have targeted  Microsoft ( MSFT ) Windows computers, encrypting data on infected machines and then demanding a ransom from users for the digital key to the locked files. Palo Alto dubbed the Apple ransomware “KeRanger.” KeRanger was burrowed into two installers of Transmission 2.90, an open-source BitTorrent software used to transmit peer-to-peer data, according to a Palo Alto Networks blog post Sunday. Because KeRanger was signed with a valid Mac application development certificate, it was able to bypass Apple’s Gatekeeper systems, Palo Alto said. KeRanger sleeps for three days before locking files, which means infections will likely become evident Monday. “After completing the encryption process, KeRanger demands that victims pay one bitcoin (about $400) to a specific address to retrieve their files,” according to the post. KeRanger also infected Time Machine backup files to prevent victims from recovering previously protected data. Palo Alto Networks says it alerted Apple and Transmission on Friday and has since updated its URL-filtering and threat-prevention processes to block KeRanger installs. Transmission has since removed the malicious installers from its website and released version 2.92. Apple revoked the abused certificate and updated its XProtect antivirus signature, Palo Alto Networks said. Apple confirmed in an email to IBD that it has pulled the developer certificate and updated XProject so that no one can install the infected app. Transmission representatives told Forbes that about 6,500 machines were infected. Transmission removed the infected version about 32 hours after Palo Alto notified the site of the breach, Ryan Olson, head of Palo Alto Networks’ threat intelligence unit, told IBD. According to Palo Alto Networks, the only previous ransomware developed to hit Macs was discovered in 2014. Then, security firm Kaspersky Lab found an incomplete hack named FileCoder. “We believe KeRanger is the first fully functional ransomware seen on the OS X platform,” Palo Alto said. Ransomware attacks are booming as cybercrooks shift from bank information theft — a model fraught with risk — to easier and less traceable scams, Olson said. And the attacks are indiscriminate, targeting grandma and her home computer as often as businesses with operations-critical files. “It’s a broad spectrum,” he said. “They’re going to monetize every infection they can using this technique.” Apple stock fell 1.1% on the stock market today , while Palo Alto Networks stock rose 2.3%.