MorningWord 11/6/14: Gotta Open My FireEye, Cut Me Mick

by Dan November 6, 2014 9:40 am • Commentary

Remember that scene at the end of Rocky when the Italian Stallion just kept getting up off of the mat, face swollen, gesturing to the champ Apollo Creed to keep going, that he wasn’t done yet despite obviously being done.  Well that’s kind of what it felt like on the Fast Money set last night watching CNBC’s Melissa Lee interview Dave De Walt, the CEO of web security company FireEye (FEYE)). Watch here.

De Walt has been on the program numerous times, and the last few times have been since his stock peaked in early March, some $65 ago.  While there has been no shortage of criticisms about how the company has communicated with the street/investors since their September 2013 IPO, the manner in which insiders have sold stock on secondary offerings, and then followed up with an earnings miss and guide down could probably be discussed forever.

But I’ve got to give this guy credit.  He is still in the ring taking punches and showing few signs of giving up. This is the face of a fighter (albeit bloodied), and I ain’t talkin about Mel Lee (you guys already know she is a killer!):


FEYE was down 15% yesterday on its first ever revenue miss, and guide down for the current quarter, despite continued strength in billings.  De Walt went out of his way to highlight the dramatic growth in billings since he took over the CEO job in 2012:

“Obviously, first of all, you know, FireEye’s been one of the fastest-growing companies, not just in security but in all of enterprise,” he said. “We went from, I think, $57 million in 2011 in billings to now an estimated $580 million just three years later now in 2014. I mean, the company 10x’d in 12 quarters. Even if you go back just eight quarters, the company quintupled, or 5x’d, in just a two-year period.”

FEYE is losing money, despite that billings and sales growth, which is one of the big reasons why investors have shot first and asked questions later given the competitive landscape.  But here is the thing, is it really management’s fault that investors bid the shares up almost 400% from its Sept 2013 IPO price of $20 to the March 5th 2014 high of $97.35 and its subsequent 70% decline to $29 since?  So when I look at the price action over the last 15 months, what’s obvious to me is that the stock was caught up in a mania, and if you were to take out the $10 billion in market cap that was made between December 2013 and Mach 2014, and then lost since, you get stock that is probably trading where it should be, up 50% from its IPO, struggling with a path to profitability despite strong demand for their product in what some would describe as a nascent market.

FEYE since Sept 2013 from Bloomberg
FEYE since Sept 2013 from Bloomberg

I haven’t followed the story that closely, but it’s starting to pique my interest as they clearly have decent footing in a market that is likely to be part of an important secular trend in online security. How the company communicates with analysts and investors is one thing.  Clearly they are not doing a great job on that front.  But yesterday’s performance by De Walt signals that he is not shying away from the spotlight, and to be frank, he has 4.6 million reasons to get this thing right. That’s his share ownership, which equals 3% of the shares outstanding.  Melissa asked him point blank if he was a buyer of his stock at these levels and his answer was sort of like, I would be.

That could be the next mini-catalyst for the shares if insiders started buying, showing their increased confidence, with the possibility to cause a short squeeze (20% of the float is short).

As I stated last night on Fast Money, we are going to start doing a little work on this one:

“If you have a washout in the next couple of days, I’m getting in there and buying it, too,” he said. “I think what happened to the stock going up 400 percent, that’s on shareholders. That’s not on the company, so now down here at $29 it’s starting to look interesting.”