Summary
- FireEye is at the forefront of the immensely promising cybersecurity industry, which is becoming an increasingly vital sector in modern society.
- FireEye's proactive approach has made it one of the most effective cybersecurity firms.
- FireEye has an extremely innovative business model that covers a wide range of products/services.
- Despite FireEye's strong positioning within the cybersecurity industry, the company is still not completely immune from the fast-evolving nature of the cyber landscape.
Cybersecurity is starting to become a main priority for organization of all types, especially with the surge of cyberattacks in 2014. The cybersecurity threat level has reached enormous proportions in recent years, with traditional cybersecurity products having an increasingly hard time keeping up. Fortunately, a new wave of innovative cybersecurity firms have emerged over the past decade, and are much more well-equipped to deal with modern cybersecurity threats. With the rapid rise in cyberattacks, the cybersecurity industry is poised to undergo a dramatic transformation.
FireEye (NASDAQ:FEYE) is at the forefront of the next generation cybersecurity firms, and has even been ranked as the top cybersecurity firm by some publications. The company focuses on all aspects of advanced cyberthreats with advanced malware protection, network security, automated threat forensics, etc. FireEye, along with companies such as Palo Alto Networks (NYSE:PANW) or Fortinet (NASDAQ:FTNT), represent some of the most promising cybersecurity firms to emerge over the past decade. Ironically, the youth of FireEye is a positive, as this means that the company is better adapted to the exponentially more sophisticated modern cyber landscape.
Proactive Approach
As cyberattacks increase in complexity and severity, it is no longer effective for cybersecurity products/solutions to be on the defensive. FireEye takes a more proactive approach by also trying to identify threats before they actually occur, which has proven to be a winning business model thus far. In fact, FireEye had made numerous headlines for detecting major corporate attacks before they happened, and was recently even rewarded by the SANS Institute for the company's unmatched cyberthreat detection and intelligence. The company has clearly cemented a strong foothold in the modern cybersecurity industry, largely due to its proactive and innovative approach.
FireEye has developed some of the most advanced threat detection and prevention platforms in the industry, and continues to push the frontier of advanced cyberthreat protection. From FireEye's diverse array of products, i.e. the company's NX/HX/PX/IA/AX/CM Series, threat analytics platform, etc, FireEye has maintained an incredibly vast cybersecurity business portfolio spanning from network security, all the way to endpoint security. The company also offers FireEye-as-a-Service, which had a record past quarter in terms of customer count. FireEye's focus on proactive threat detection and technological innovation should continue to propel the company moving forward.
Here is a picture of the company's NX series products for network security.
Source: fireeye
Record Levels of Demand
FireEye is experiencing unprecedented levels of demand, with its past quarter yet again breaking several sales records. While this is not unexpected given the cybersecurity industry's overall growth, FireEye's growth has even eclipsed that of the overall industry's. The company's customer count also surged to unprecedented heights in quarter four, with the company acquiring 78 Global 2000 customers. FireEye's worldwide customer count grew to 3130, increasing 54% on a YOY basis. Unsurprisingly, the company's financials also grew to record numbers, with billings rising 117% YOY to $212.6M.
The demand for sophisticated cybersecurity products/services has clearly never been higher, and will only continue to grow as the cybersecurity threat worsens. Newer cybersecurity firms like FireEye will likely gain disproportionately as legacy cybersecurity products will almost certainly be ill-equipped to deal with the changing realities. FireEye will likely be one of the few companies leading cybersecurity growth over the next decade, as it is one of the few companies able to effectively get ahead of cyberthreats in addition to being able to defend against increasingly sophisticated attacks. With the cyberthreat momentum increasing (2014 was yet another record year for cyberattacks), FireEye will likely continue to break growth records in the years to come.
Near-Term Outlook
FireEye has a lot to look forward to in the near term, as the company is starting to become a more well-known force within the cybersecurity industry. In fact, an increasing number of its products have been sold without proof of value, indicating that the company is becoming more trusted in the burgeoning cybersecurity industry. As a result, its sales cycles have become increasingly short, which should have an immediate positive benefit to its bottom line moving forward. This also suggests that FireEye's brand value is increasing, which is a vital aspect of the cybersecurity industry.
The company is also offering cloud based solutions, which should be a large growth driver over the next few years. Cloud computing is becoming ever-more popular, so FireEye's cloud solutions segment should give the company extra upside moving forward. As more organization and individuals move their data/operations onto the cloud, cloud security will become increasing important. Some cybersecurity firms are even focusing almost exclusively on cloud security, which hints at the growing significance of this segment.
Risks
Despite the enormous promise of FireEye, the company will almost certainly be subject to enormous volatility moving forward. In the short time since FireEye's IPO, the company has already experienced massive swings in its market valuation. In fact, the company has experienced a drastic stock price swing from the 90s all the way down to the 20s in just a matter of a few months, clearly showcasing the volatility of FireEye. While the stock movements of FireEye should become marginally less volatile over time, the company will likely still experience high levels of volatility in the future (largely due to the naturally volatile nature of the cybersecurity industry itself).
In addition, FireEye is involved in an inherently unstable industry, where obsolescence occurs at an accelerated rate. Cybersecurity products/services could become obsolete overnight, which is not an exaggeration given the continual advancements made by cybercriminals. Cybersecurity products have very little staying power without upgrades and/or innovations. Despite FireEye's current status as one of the leading cybersecurity innovators, the company may have a hard time sustaining its momentum in the long term.
Conclusion
As one of the leading newer generation cybersecurity firms, FireEye is cementing its place at the forefront of the industry through relentless innovation, and the occasional acquisitions when necessary. FireEye's massive $1B acquisition in cyber forensics company Mandiant is a prime example of the company's proactive. If FireEye continues its aggressive and innovative approach to cybersecurity, the company will certainly have a long-term place within the industry. At a market capitalization of $6.64B, the company still has significant upside moving forward.
Although the company reported a negative yearly net income of $443.79M, this is only to be expected given its aggressive growth strategy. Better metrics for valuating FireEye are its exponentially growing revenues and gross incomes. In fact, FireEye has more than doubled revenues and gross incomes on an annual basis from 2010 to 2014. On top of this, FireEye's growth momentum is nowhere near slowing down, with the company recording $425.66M in revenue and $250.57M in gross income for 2014. With such tireless innovation and aggressive growth, FireEye is undervalued at its current market capitalization.
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