Contact: Brenon Daly
The next billion-dollar tech IPO is moving closer to the public market. FireEye has revealed its paperwork for an offering that’s sure to draw bullish interest from investors willing to put money into an early-stage company that’s still in hyper-growth mode. The cybersecurity vendor, which only really began shipping product in 2010, is putting up eye-popping growth rates but is also spending heavily to get them.
For instance, FireEye doubled sales in the first half of 2013 to $62m. Granted, that’s coming off a small revenue base, but it’s still an astonishing rate compared with the overall information security (infosec) market. In a survey by TheInfoPro, a service of 451 Research, more than half (52%) of infosec buyers forecasted their 2013 budgets would be the same (44%) or even lower (8%) compared with 2012. (Among the remaining roughly 48% who projected a larger infosec budget this year, most indicated it would be only a single-digit percentage higher.)
To post its enviable growth, FireEye has been spending heavily. In fact, so far this year, the company has spent more on sales and marketing costs than it has taken in as revenue. That’s appropriate (though clearly not sustainable) for a company growing in the triple digits that sees a vast opportunity in front of it.
Nonetheless, we would note that it is significantly higher than the two most-recent infosec providers that have come to market. Sales and marketing spending at both Palo Alto Networks and Imperva ranges between 50-60% of revenue. (We don’t consider Qualys, which came public last September, a fitting comp for FireEye because it is a subscription-based business rather than a product-based business like FireEye, Imperva or Palo Alto.)
Of course, we don’t expect the red ink at FireEye to deter many public market investors. Both Palo Alto and Imperva don’t turn a profit, even though they are growing at much slower rates than FireEye. (Palo Alto is increasing its top line at about a 60% rate, while Imperva is roughly half that level.) And yet, Wall Street has bid up both of the recent infosec IPOs to double-digit price-to-sales valuations. Collectively, those offerings have created $4.8bn of market value.
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