LOCK

Investment Analysis Clubs Saul’s Investing Discussions
1

Anyone have any thoughts on LOCK?

As more and more retailers come out with security breaches it feels like an obvious solution for consumers to flock to identity theft companies. The trend is clear, imo.

I personally foresee identity theft protection to be prevalent among the majority of people, similar to property insurance. LOCK is about $250/year and its provides piece of mind.

I only know one person who had an identity issue (not theft related but a miscommunication/typo/crossed wired scenario) where he needed to disambiguate/prove his identity. It took hours of research and physical legwork to get everything straightened out over several months. If LOCK or others can provide that type of service of saving time and guaranteeing/minimizing loss, I don’t understand why someone who actually has a few $$$ wouldn’t pay for this.

Flipside, I read a previous LOCK post that the “poster” does all of the monitoring himself (mostly public information I presume) because its easy. I doubt however most people would care to learn or spend the time to do the monitoring not to mention LOCK is selling servicing to help once the inevitable happens.

Thoughts?

Eric

2 Likes
2

Anyone have any thoughts on LOCK?

Eric,

After it was recommended on MF RB and I read about the company and looked at what they did, I not only bought the stock, I subscribed to the service. That says it all.

Saul

3

Any one heard of Fire Eye - FEYE?
They are not profitable. But their revenues are growing crazy 100% YoY growth. They just did secondary offering at 82 today. Pretty richly valued, but if they continue to take the cyber security business away – it is a sticky neat recurring model for their business. Once a customer subscribes, it is very hard to leave them.

Top level management team.

http://www.fireeye.com/company/leadership.html

I dipped my toes with their secondary offering – will be interesting to watch. Any one studied the company? Any thoughts?

Praveen

4

Praveen their revenue has been sky rocketing and so has their gross profits but as much as their Revenue has been going up their profits have been going down.

They also are cash flow negatinve and bleeding money. They will have to keep raising capital unless they can become profitable or at least cashflow positive. They have 174 million in cash and they burned through about 130 million in cash last year.

Andy

1 Like
5

I should make it clear that Andy was talking about FEYE here, not LOCK. For the quarter FEYE had $57.3 million in revenue and $40.5 million in adjusted losses. That means their expenses were about $98 million.

If a year from now, their sales are up 60% (by $34.4 million), they will have revenues of $91.7 million for the quarter. That won’t even cover current expenses if every penny of added revenue went directly to the bottom line, with no new expenses to pay for that extra 60% of revenue. Actually, even if revenue goes up twice as fast as expenses, and expenses only go up 30%, expenses will be up $30 million, and they will still be losing $36 million.

Maybe we’re not being generous enough. Let’s say revenues go up 70% to $97.4 million. And expenses don’t go up half as fast as revenue but only 40% as fast as revenue. Expenses will be $125.4 million and they will lose $28 million.

It’s hard to see any scenario in which they can break even realistically in less than five years. But maybe I’m a pessimist.

Saul

5 Likes
6

“It’s hard to see any scenario in which they can break even realistically in less than five years. But maybe I’m a pessimist.”

Saul,

Your comments about FEYE remind me a great deal of your very prescient observations about WPRT. Another company with a great idea but were spending their cash like drunken sailors. We all have seen how right you were as WPRT has been in a death spiral.

I would not touch FEYE and advise others to avoid it as well.

Jim

3 Likes
7

Thanks Saul I should have made it clear that I was talking about FEYE. I just glanced at it with Yahoo so I haven’t seen the most recent quarters.

Andy

8

Thanks Andy, Saul and Jim.

I agree with all your points that they are burning cash at a very unsustainable rate. With the RB introduction of LOCK, I started looking at cyber security related companies, and came across this one.

I took a starter position to follow the company closely. Their recent purchase of Mandiant was a game changer - looks like from what I read from analysts.

Also the webcast that I listened was informative as well :

http://investors.fireeye.com/events.cfm

people were asking about general trends, security market, etc. it gave me impression they are highly respected and taking market share from established security firms such as cisco, etc.

See the latest Q announcement

http://www.fireeye.com/news-events/press-releases/read/firee…

2013 year ending revenue was 162 mil. 2014 year end revenue guidance is
400-410 mil. the growth is huge, and I read somewhere that Mgmt was conservative in their guidance. But, if they execute as they say and eventually reduce expenses, I think it is a company to watch. Thanks for all the comments.

"First Quarter and 2014 Outlook

FireEye provides guidance based on current market conditions and expectations.

For the first quarter of 2014, after a reduction of approximately $3 million in revenue related to purchase accounting adjustments to the assumed amount of Mandiant’s deferred revenue, the company expects, on a non-GAAP basis:

Billings in the range of $84 to $88 million.
Total revenue in the range of $70 to $72 million.
Gross margin in the range of 68 to 70 percent.
Research and development expenses as a percent of revenue in the range of 50 to 53 percent.
Sales and marketing expenses as a percent of revenue in the range of 92 to 95 percent.
General and administrative expenses as a percent of revenue in the range of 24 to 27 percent.
Loss per share of 51 to 56 cents, based on approximately 136 million weighted average shares outstanding, basic and diluted.
Consistent with the preliminary guidance ranges for billings and revenue announced on January 2, 2014, for the full year 2014, the company expects, on a non-GAAP basis:

Billings in the range of $540 to $560 million.
Total revenue in the range of $400 to $410 million.
Gross margin in the range of 70 to 73 percent.
Research and development expenses as a percent of revenue in the range of 36 to 39 percent.
Sales and marketing expenses as a percent of revenue in the range of 82 to 85 percent.
General and administrative expenses as a percent of revenue in the range of 19 to 22 percent.
Loss per share of $2.00 to $2.20."

1 Like