Dear Mr. Berko: About four years ago, I bought 200 shares of FireEye at $53, and two months later, it had fallen to $33. You said to sell it because the underwriters were a "crock of crooks" and told me it wouldn't have earnings for years. Why were you so down on the stock? Last week, you told a friend of mine who sent you an email about FireEye that he should buy the stock. I still have my original stock. What has changed? Should I buy more? — CR, Kankakee, Ill.
Dear CR: I won't comment on what I told your friend, but please ask to see the email I sent him. Hacking has become an extremely profitable business, and FireEye wants to prevent it from becoming an even bigger business. There has been an explosion in the number of cyberattacks, not just in the U.S. but around the world. And it's FireEye's business to find and burn the hackers.
During a general conversation with the manager of a large mutual fund five-plus years ago, I was told that a company called FireEye (FEYE-$17) would come public at $20 a share in the next few weeks. He said that FEYE was "involved in a sexy business" and that if management could report a profit, the stock could run to $100. That was the summer of 2013, and I'd never heard of FireEye. I figured it was a biotech company specializing in eye diseases and commented to the fund manager that I was familiar with some of the medical research. I was chagrinned when told that FEYE had pioneered a purpose-built, machine-based security platform providing real-time threat protection, allowing enterprises and governments to prepare for, prevent, respond to and remediate cyberattacks.
Well, in September 2013, FEYE did come public at $20, and it ran to $40. That year, FEYE had $165 million in revenues but zero profits. Then the werewolves of Wall Street — Morgan Stanley, Goldman Sachs, J.P. Morgan and Barclays — in their very practiced, inimitable way, began to promote FEYE, pushing the shares to $80 by February 2014. And on March 6, those four ogres engineered a $1.1 billion secondary offering, selling more shares to the public at $82. They had to know that FEYE wouldn't earn a penny of profit during the foreseeable future. But FEYE's shares quickly zoomed to $97, and several days later, they had crashed to $32 a share. Shame on Goldman, Barclays and the two Morgans (which, in 2010, sold billions in AAA-rated collateralized mortgage obligations they knew would eventually implode). They figuratively screwed a dupable public and chivied several thousand trusting gullibles to purchase FEYE at $82. There are a lot of smart crooked cookies at those brokerages, and not one of those smart crooked cookies warned his clients that FEYE was outrageously overpriced and a disaster waiting to happen. And the disaster happened, as FEYE's market cap lost $5 billion a few months later and another $5 billion in the following few years. Having plenty of friends at the Securities and Exchange Commission, it's little wonder that none of these brokerages was called to the woodshed.
Cybertheft is a marvelously easy and profitable business, and even doltish cyberthieves can bank millions a year. Cybertheft is expected to cost businesses over $2.2 trillion in 2019. Anyone who plays a decent chess game can be a super cyberthief and snatch some of those easy cyberdollars. Cyberthieves don't pay taxes, work their own hours, toil from anywhere, vacation when they wish and have minimal overhead costs. This year, global spending to combat cybertheft will exceed $80 billion, and it will probably be over $110 billion next year. FEYE should collect $820 million in revenues this year, $875 million in 2019 and $910 million in 2020 — amazingly, without making a profit. Eventually, FEYE should prosper. However, owning a stock that's unable to report a profit is like eating ice cream without flavor. I'm uncomfortable owning FEYE. On the other hand, a stock market recovery could bump FEYE to the $22-$24 level. Hold it a bit longer.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.