Why FireEye Has Become 'the Navy SEALs of Cybersecurity'

NEW YORK (TheStreet) -- For FireEye (FEYE), bad news means good business.

The bad news comes in the form of corporations that have either suffered cyberattacks on their computer networks or want to prevent such attacks from happening. The good business results come to FireEye as the companies seek software to keep the bad guys out and stop those who may have found a way inside of their operations.

And now, with FireEye set to work with Visa (V) to develop products for merchants and credit card issuers to defend against large-scale attacks on payment data, the company is in an arena where it may drive the next big wave of cybersecurity technology.

"The company has become the Navy SEALs of cybersecurity," said Daniel Ives, an analyst with FBR & Co. Ives called the deal with Visa "a big partnership which speaks to the seriousness that financial stalwarts like Visa are viewing threats to customers on the cyber front."

For Visa, FireEye will run a web-based service meant to improve ways of getting intelligence on cyberthreats. FireEye will basically become the police service watching over Visa's network.

On Thursday, FireEye shares edged up 26 cents to $47.95. For the year, the shares haven risen 52%, compared with a 6.8% gain for the Nasdaq Composite Index.

Cybersecurity, especially involving credit cards and other financial information from consumers, remains one of the most-popular topics in technology. This comes with the advent of mobile-payment services such as Apple (AAPL) Pay and with major attacks such as the one on Target (TGT) in late 2013 which resulted in the security breach of 40 million credit and debit cards.

A new report from the Poneman Institute of Traverse City, Mich., which includes survey results from 675 information-technology and security practitioners, illustrates the importance of cybersecurity. The Ponemon results found that companies average about one serious cyberattack a month. Most involve malicious software or malware designed to infiltrate networks or infect devices.

The Ponemon study showed the methods IT security officials use to identify attacks might be ripe for the kind of services FireEye is implementing with Visa. According to Ponemon, 38% of respondents said they identified advanced-threat attacks by "gut feel." Only 23% cited "forensic evidence" from poor system performance, and 16% said they used shared intelligence from customers or partners because of a lack of their own available resources.

Providing products to fight cyberattacks has proven to be a solid business for FireEye. Its first-quarter revenue rose 69% from a year ago to $125.4 million as billings climbed 53% to $151.6 million.

Profitability, however, remains an issue.

FireEye lost $72.3 million, or 48 cents a share, excluding one-time items, in the first quarter, compared with a loss of $71.4 million, or 53 cents a share, in the first quarter of 2014.

Cowen & Co. analyst Gregg Moskowitz pointed out that while FireEye has some major customers such as Ace (ACE), an insurance company, and Hewlett-Packard (HPQ), its inability to reach profitability has raised some skepticism.

"We are concerned that the company's high pricing, combined with the presence of several 'good enough' alternatives, may be curbing its growth potential," Moskowitz said.

Among the alternatives are Palo Alto Networks (PANW) and Check Point Software Technologies (CHKP)

FBR's Ives agreed that FireEye's lack of profits "remains and overhang" on the company's outlook, but he believes FireEye is in a good position, along with its rivals, to gain a large portion of a market he estimates with be worth $15 billion to $20 billion annually in the coming years.

"The threat levels facing companies and governments is at critical levels and plays well into FireEye's strengths," Ives said.

Rex Crum doesn't own shares in any of the companies mentioned in this story.

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