Earlier, in the Chart of the Day, I highlighted the sharp reversal in ZU (20% intra-day) following the stock’s lock-up expiration. Next week FEYE has 91 million shares coming unlocked (May 2oth to trade May 21st) on the 6 month anniversary of their IPO that priced 17.45 million shares at $20, and a little more than 2 months after the company did a secondary offering of 14 million shares at $82!!!
With the stock down 70% from the early March highs, one trader is saying enough is enough, or at the very least willing to make a defined risk bet that the negative sentiment has gotten a bit overdone. When the stock was $26.80 at 12:41 pm, a buyer paid .85 for 3500 of the May 23rd 29 calls, risking about $300k in premium that the stock will be above $29.85 on next Friday’s close.
When you look at the chart of FEYE it’s really hard to take a dim view towards it at these levels (down 70% from the all time highs made in early March), but this is a clear example of investors taking the escalator up and the the elevator down:
The technicals are what they are. Not particularity compelling on the long side in front of a known overhang, but clearly a tough press on the short side as it almost seems to easy.
On the fundamental front the company just held an analyst meeting last week and famed software analyst Rick Sherlund from Nomura, who rates the stock a Buy with a $55 12 month target and had the following to say on the way out:
- FireEye has a rapid pace of new product releases for existing products and has undergone a substantial expansion of the product line. New products shown yesterday provided more specifics on previously discussed upcoming new products and a road map for the rest of the year.
- Management noted that it still expects product billings to represent 40% – 45% of total, but this is skewed to the second half, a period that is seasonally stronger for software license sales. This implies there will be accelerating growth from the approximate 60% product billings in Q1.
- We believe FireEye continues to have the greatest efficacy for detection and remediation of advanced threats. Competitors have the benefit of an integrated product portfolio, so expansion of the FireEye portfolio is a strategic positive in delivering a broader solution and cross selling leverage.
- Management believes it has sufficient cash ($584m) to reach cash flow positive from operations in 3 – 5 years, before acquisitions. We would expect most of the acquisition activity to be predominately in stock.
My take is simple, this company should have never been taken public, aside from the fact that VCs recognized the opportunity to get out of their investment given the bubbly conditions for new issues and insiders’ desire to monetize before the window was closed. The company is not expected to turn a profit until at least 2017, and currently trades at 10x sales, down from 20x at its peak in early March. Totally mental!
You know whats also mental the price of options, 30 day at the money implied vol is 76, yeah down from a high of 94 last month, but almost double the 52 week low of 43:[caption id="attachment_40474" align="aligncenter" width="600"] FEYE 1 year chart of 30 day at the money IV from Bloomberg[/caption]
Directional bets, expressed with long premium are going to take a lot to go right to make money, timing, direction and most importantly magnitude of move during the defined period.
From where I sit, given the recent price action of TWTR and ZU into their ipo lock-ups I don’t see why it makes too much sense to place your bets until right before shares come unlocked, but if I were to play I would likely play for a bounce, but look to do so in manner that offsets a vol collapse on the way out, not outright call purchases.