The shares of cybersecurity company FireEye gained 80% on its trading debut on Friday in a sign of how red hot cybersecurity is on Wall Street at the moment, and even inspired at least one peer to accelerate plans to go public.
FireEye, whose debut ranks as the sixth biggest first-day close in the United States this year, is the latest in a string of successful public offerings from technology companies.
“This is good for everybody in security,” George Kurtz, CEO of cybersecurity startup CrowdStrike, said of the FireEye IPO. “It shows that there are a lot of legs in the security market going forward as the security market emerges.”
Companies are pursuing public offerings as stock markets rise, the result of an easy monetary policy and a gradually recuperating U.S. economy.
This week, the US Federal Reserve took a surprise decision to maintain the monthly $85 billion bond purchase program that has kept rates low and boosted investor appetite for risk, a boon for equity markets.
FireEye and ad technology company Rocket Fuel, which also went public on Friday and whose shares have nearly doubled in value, are helping to set the stage for other high profile technology offerings later this year and in 2014. These include Twitter, Box and Dropbox.
Analysts say cybersecurity companies in particular are in high demand because of the scarcity of public corporations in that market and the growing threat of online crime worldwide.
Businesses, increasingly frustrated as they discover computer viruses in their networks, are looking to FireEye and others to provide technologies to augment anti-virus software.
“Security is hot. This will open the door for more companies to do this,” said Kim Forrest of Fort Pitt Capital Group.
Jay Chaudhry, chief executive of cybersecurity company Zscaler, told Reuters that plans for its IPO have been pushed ahead six to nine months following the success of FireEye’s IPO.
“The window is open,” he added.
Others are more patient. Andre Durand, CEO of Ping Identity, said the hot reaction to FireEye will not affect the timing of his firm’s IPO, which is expected next year or in 2015.
FireEye soared to $44.89 at one point on Friday, more than doubling its $20 IPO price. It fell back in later trading and closed at $36 for an 80% gain.
That was enough to accord it the sixth best debut of 2013, behind companies such as Sprouts Farmers Market Inc and Noodles & Co, the two best performers so far this year.
How it works
FireEye uses cloud-based technologies to help businesses fight off computer viruses that evade old-school anti-virus software made by companies such as Symantec Corp and Intel Corp’s McAfee security division.
It says that it is responsible for uncovering about 80% of all “zero-day” attacks, so-called because the attack occurs when the vulnerability is discovered, which means developers have had no time to address the threat.
FireEye has yet to post a profitable quarter since it was founded in 2004. It spent more on sales and marketing in the first six months of its current fiscal year than it generated in revenue, contributing to a $63 million operating loss for the period.
At one point late in the day, 451 Group analyst Brenon Daly valued the company at more than $4.37 billion, or a lofty 32 times this year’s projected revenue of $150 million. That gives it a much richer value than other cybersecurity firms that have gone public in the past few years.
Palo Alto Networks, which went public in July 2012, trades at 8.5 times annual revenue and Imperva trades at about 11 times revenue on the NYSE, Daly said.
However, its valuation might raise some eyebrows among investors who still recall the dotcom bubble, when unprofitable companies launched with outsized growth expectations.
FireEye sold about 15.2 million shares at $20 each, above its proposed price range, raising about $304 million from the offering. All the shares in the IPO were sold by the company.
FireEye CEO Dave DeWalt, the former head of McAfee who sold that company to Intel, said in an interview that he thought FireEye was “fairly valued” and that he intentionally boosted spending, racking up losses, to build up an infrastructure to support future growth.
“We have a heck of an opportunity,” he said.
He estimated operating margins of 20% to 25% within four to six years from now.
Some investors, such as Tim Ghriskey, said they understood the appeal, but that it was too risky.
“The valuation (of FireEye) is astronomical, but so is the revenue growth rate,” said Ghriskey, chief investment officer with Solaris Asset Management, who did not add any FireEye shares to the $1.5 billion he helps manage.
“For many investors this is nosebleed territory, especially since the stock has opened at twice the IPO price.”