First Posted on mercurynews.com Edition 09/20/2013 08:19:09 AM PDT
MILPITAS — FireEye’s initial public offering grew in size at a dramatic rate in the past week, but Wall Street wasn’t done increasing the price for a piece of the Silicon Valley security software firm.
After pricing shares more than 40 percent higher than its original maximum price, FireEye shares more than doubled from the $20 IPO price in initial trades Friday morning, opening at $40.30 on the Nasdaq trading floor about 8:15 a.m. Pacific time. In its first day of trading, FireEye sold in a range from $35.28 to $44.89 before closing with an increase of 80 percent at $36.
“Its been a pretty amazing couple of weeks,” CEO Dave DeWalt said in a phone interview from Nasdaq headquarters in New York on Friday. “The demand was incredible.”
FireEye arrived at a $20 price after initially stating that it wanted to sell shares in a range from $12 to $14. After bumping that range to $15-to-$17 on Tuesday, the company decided to jump higher Thursday night while also selling more shares than it had planned, 15.2 million. All told, FireEye’s IPO took in $303.5 million at a valuation of more than $2.3 billion.
Security software has been a hot segment of the tech industry in the past year: Cisco (CSCO) acquired Maryland security firm Sourcefire for $2.7 billion in July, and Silicon Valley firms such as Palo Alto Networks have seen their valuation balloon after arriving on the public markets.
Qualys CEO Philippe Courtot has been in the middle of the security boom, having taken his Redwood City company public almost exactly a year ago at $12 a share; the stock closed Thursday at $22.98. He said Friday that enterprise customers’ conversion to cloud software has increased the demand for new solutions to security issues.
“Cloud computing has essentially totally revolutionized IT,” Courtot said Friday. “You have large companies essentially — by committing to use all this cloud technology — changing their infrastructure,” forcing new security tactics.
Milpitas-based FireEye was founded in 2004 by former Sun Microsystems engineer Ashar Aziz. The company, whose hardware and software help block cyberattacks, counts more than 60 federal agencies among its 1,000-plus customers, including the FBI and U.S. Department of Defense. Others that pay for the company’s services include banks, utility companies and UC Berkeley.
DeWalt noted that companies and governments are spending $30 billion a year to keep online threats at bay. With the roaring IPO, he said, “We’ve got a much stronger balance sheet, and that gives us the opportunity to expand even further around the globe.”
In December, Aziz ceded the CEO job to valley software veteran DeWalt, who had been the startup’s chairman. DeWalt most notably had been CEO of McAfee before selling the security pioneer to Intel (INTC) for $7.7 billion, and his ascension to the top spot at FireEye was widely seen as proof the company was on the IPO fast track.
FireEye has raised $100 million in private capital from backers including Sequoia Capital, Norwest Venture Partners and In-Q-Tel, the CIA’s venture arm; Sequoia and Norwest each own 20 percent of the company, according to its SEC filings. Three other valley finance heavyweights — DAG Ventures, JAFCO Ventures and Silicon Valley Bank — collectively own nearly 25 percent.
In addition, Aziz — now FireEye’s vice chairman and chief technology officer — owns 10 percent, which is worth more than $230 million at the IPO price. DeWalt’s 4 percent stake would be good for $92 million.
The company has reported rapid growth: Head count shot from 175 employees at the end of 2011 to more than 900 this past June. Revenues grew eightfold from 2010-2012, to more than $83 million, thanks in part to a subscription model that requires customers to sign up for a cloud-based malware information service.
But the company’s operating losses also have soared due to R&D, sales and marketing costs: FireEye reported that it lost $63.5 million in 2012, and it has never posted a profit.
Qualys CEO Courtot believes the security industry has a lot of growth ahead of it as cloud infrastructure continues to change, and said FireEye has a good chance for growth in that field.
“We’re going to see the emergence of a new generation of companies which will adopt the new cloud architecture. And FireEye could also start to transform into a much more cloud offering — they have the resources today because they’ve had a fantastic IPO. If they don’t do that, they won’t survive,” he said.