FireEye's (FEYE) Deal for iSight Slightly Rich, but Premium is Justified; FBN Trims PT to $22

FN Securities trims its price target on Outperform-rated FireEye (Nasdaq: FEYE) from $28 to $22 following preliminary Q4 results and acquisition of iSight Partners.

Analyst Shebly Seyrafi commented: FEYE announced that FQ4 revenue is expected to be $184-185M, at the low-end of the company’s $182-190M guidance range, but NG billings is expected to be $256-257M, at the high-end of the company’s $240-260M guidance. Moreover, the company expects F2016 NG billings growth of ~20% Y/Y, higher than our previously modeled 18% billings growth rate. We also believe that investor expectations were quite low, as the company previously noted weakness in EMEA (11% rev.), shorter contract lengths, and lower average deal sizes, and as the stock declined from ~$20 at the beginning of the year to $14.87 yesterday. FEYE noted increased billings growth rates and record performances in both Europe and Asia-Pacific.

On the iSight deal: As iSight had ~$50M in billings (with over 90% subscription-based) in C2015, the price works out to be ~5.5x trailing billings (assuming the earn-out is realized). This may appear high as FEYE is trading at ~2.4x trailing billings. However, we assume that much of the interest is in iSight’s technology and the ability to leverage FEYE’s channel with the iSight solution, so a premium is justified. Moreover, the deal is expected to be slightly accretive to FEYE’s F2016 operating income and cash flow. iSight has nearly 350 employees, which is over 10% of FEYE’s roughly 3,000 employee base as of FQ3 2015. Over the past eight years, iSight has invested over $100M to develop its cyber intelligence capabilities. Before the deal, iSight had 90 large enterprise customers and 250 government customers. As FEYE has more than 4,000 customers, it has the opportunity to increase iSight’s customer base by over 10x.

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