Tech investors might recognize FireEye (NASDAQ:FEYE) as the hot cybersecurity IPO from 2013 that fizzled out over the following years. After going public at $20, FireEye soared to the mid-$80s before concerns about its valuation, lack of profits, cash burn rate, and a secondary offering torpedoed the stock.
FireEye now trades at about $10, and its sales growth has flatlined, with analysts expecting just 1% sales growth this year. I've discussed the many shortcomings of FireEye's business model before, but today I'll focus on six lesser-known facts about this struggling cybersecurity firm.
1. The first cybersecurity firm certified by Homeland Security
In 2015, the U.S. Department of Homeland Security certified FireEye's Multi-Vector Virtual Execution (MVX) engine and Dynamic Threat Intelligence (DHI) cloud platform under its SAFETY Act.
That made it the first cybersecurity company to achieve SAFETY certification for its products, and reinforced its reputation as a "best in breed" threat prevention solutions provider. That's why FireEye was asked to investigate high-profile data breaches at Target, JPMorgan, Sony, and other companies over the past few years.
2. Its core technologies came from an acquisition
FireEye was founded in 2004 as a security appliance maker, but it wasn't considered a major threat prevention player until it acquired Mandiant for $1 billion in 2014. Mandiant was founded by current FireEye CEO Kevin Mandia, and used digital forensics and an aggressive "SWAT team" approach to contain data breaches. Mandiant rose to prominence in early 2013 after it published a report which implicated China in cyber espionage activities.
3. Its founder has left the company
FireEye's founder Ashar Aziz, who has been frequently hailed as a "technical visionary," orchestrated the company's early development of security appliances and oversaw its acquisition of Mandiant. Prior to founding FireEye, Aziz worked at Sun Microsystems (now part of Oracle) as an engineer and CTO.
That's why Aziz's abrupt resignation from FireEye's board of directors last August stunned investors. FireEye said that Aziz's departure wasn't caused by any disagreements with the company, but rather a "desire to spend more time with his family here and abroad, and also to pursue new projects."
4. Its former CEO loved buyouts
In 2012, FireEye hired Dave DeWalt, the former CEO and President of McAfee, as its CEO to prep the company for its IPO. DeWalt had a reputation for orchestrating buyouts -- he engineered the sales of Documentum to EMC in 2003, and McAfee to Intel in 2011. Neither company turned out to be a great deal for the buyers -- EMC sold Documentum this January, and Intel agreed to sell a majority stake in McAfee (rebranded as Intel Security) last September.
As FireEye dipped below its IPO price in late 2015, many investors speculated that DeWalt would also try to sell the company. However, DeWalt resigned last June and was replaced by Mandia, which suggests that quick buyouts are now off the table.
5. It turned down several buyout offers
Shortly after DeWalt's departure, reports claimed that several major suitors, including Cisco and Symantec (NASDAQ:NLOK), had tried to buy FireEye. A Bloomberg report claimed that FireEye had rebuffed the offers because they were lower than its expected buyout price of $30 per share.
A Reuters report from earlier this year claimed that FireEye ended buyout talks with Symantec shortly after Mandia took over due to disagreements over the price. That time frame indicates that the talks occurred after Symantec announced the acquisition of BlueCoat for $4.7 billion, but before it agreed to buy LifeLock for $2.3 billion.
6. It's settling a big class action lawsuit
It probably isn't surprising that FireEye is being sued by its investors. The company was hit by multiple class action lawsuits in 2014 after its secondary offering triggered a steep sell-off. The plaintiffs also allege that FireEye execs made misleading claims about the effectiveness of its threat prevention technologies.
The Register recently reported that FireEye plans to settle these lawsuits for $10.2 million. That would only account for 1.4% of its projected revenues for the year, but it would also represent the second largest recovery ever achieved in a case argued in a California state court under the Securities Act of 1933. The settlement would also inevitably tarnish FireEye's reputation.
The key takeaways
FireEye might look like a tempting contrarian play, but the company is in serious trouble. It isn't pivoting from appliances to cloud-based services quickly enough to boost its top line growth, and Mandia's plan to grow margins by laying off employees could dull FireEye's competitive edge. Several of the facts I discussed in this article support that bearish case and indicate that FireEye might not ever revisit its IPO price again.