In the previous article, I laid out my performance for Forex portfolio since inception and for the year 2016. This one will briefly lay out the equity/commodity portfolio performance. Briefly, because I don’t have much statistics on it than for FX……for now.
Before going further, I should note: “Average price” includes Dividend Reinvestment Plan (DRIP) – the dividends I received were used to buy additional shares in the company.
Since inception (summer of 2014), I’m down 31%. I’m currently holding 9 companies, including the ones I wrote article(s) about; GoPro (NASDAQ:GPRO), General Electric (NYSE:GE), and Cisco (NASDAQ:CSCO). I don’t have Eli Lilly (NYSE:LLY) since my broker doesn’t allow me to short.
All shares of 9 different companies belong to 1 class: domestic equity. 59.4% is in large cap. 18.89% in mid cap. 3.66% in small cap. And 18.05% in “other domestic equity.” Will change the allocation this year; international equity, fixed income, etc.
On February 16, 2015, I wrote about Microsoft (NASDAQ:MSFT) when the share-price was $43.95. Today, it’s trading at $62.14. I missed the opportunity to go long on it.
On April 12, 2015, I wrote about GE and believed GE was a strong by (it still is). Since then, GE is up 12.30%, from $28.06 to $31.51 (dividends not calculated). Dividends are automatically invested in new shares. Average price I paid for the shares is $25.99. I’m currently up 21.24%.
In the summer of 2015, I wrote about CSCO (part 1, part 2 AND 4Q FY’15 earnings report). Since the first article, CSCO is up 7.97%, from $27.99 to $30.22 (dividends not calculated). Average price I paid for the shares is $24.85. I’m currently up 21.61%.
If you have any questions/suggestions, feel free to contact me anytime. Thank you.
FireEye acquired four companies in the last three years.
Issued nearly $900 million in debt and continues to lose money.
Possible secondary offering, diluting shareholders’ equity further.
Founded in 2004, FireEye (NASDAQ:FEYE) has grown exponentially. The importance of security is extremely vital, and the demand for security continues to increase as cyber attacks increase and the world becomes more connected.
In 1988, after four years from the Macintosh introduction, the Internet’s first ever worm virus hit the computers. The Morris worm – one of the finest recognized worms to affect the world’s nascent cyber infrastructure – changed everything. Bugs in the code caused hundreds of systems to slow down and crash. Computer security was then no longer a science fiction.
Today, it is not just a computer security, but also smartphone security, cloud security, and so on. In short, the Internet is everywhere. As FireEye says:
“Attackers are clever, technology is complex, and experts are in short supply.”
FireEye stands out in the global Specialized Threat Analysis and Protection (STAP) market. According to research firm IDC, FireEye had 37.9% of the nearly $1 billion STAP market in 2014, seven times greater than its closest competitor. The $930 million STAP market grew 126.3% from 2013. By the end of 2019, it’s expected to reach $3.14 billion, compounded annual growth rate (CAGR) of 27.6% from 2014 to 2019.
From the STAP market alone, FireEye generated $353 million in revenue, a 119.2% growth year over year (Y/Y). The STAP market revenue accounted for a whopping 82.86% of FireEye’s total $426 million revenue in 2014. If the company can maintain its 38% of share by 2019, it could be generating about $1.2 billion in revenue from that market alone.
While these are great news, there’s a disappointment. FireEye’s 37.9% share of the market in 2014 declined from 43.1% in 2013 due to a growing competition, notably from Palo Alto Networks (NYSE:PANW).
In April 2014, Palo Alto Networks acquired Israeli cyber security start-up Cyvera for nearly $180 million. In September 2014, it introduced Traps, an endpoint STAP product that was built on the technology from Cyvera.
FireEye itself admits the intense competition it operates in. In its 2015 annual filing, it recognized that “several vendors have either introduced new products or incorporated new features into existing products that compete with our solutions…independent security vendors such as Palo Alto Networks…offer products that claim to perform similar functions to our platform.”
In December 2013, FireEye acquired Mandiant, a leading provider of advanced endpoint security products and security incident response management solutions, for approximately $1.02 billion in cash and stock. Mandiant is well known for a report it published in February 2013, detailing a secretive Chinese military unit believed to be behind a long list of cyber attacks on U.S. companies.
The combination of former FireEye, attack detector, and Mandiant, attack responder, came after the Snowden leaks in June 2013. The marriage between them created a major force in the cyber security industry.
“We’ve gone from selling discrete web and email security appliances to enterprise customers to delivering a global threat management platform integrated across the network, endpoint and cloud to customers large and small.”
According to a report by Cybersecurity Ventures, the global cyber security market is expected to grow from $106.32 billion in 2015 to $170.21 billion by 2020 at a compound annual growth rate of 9.8%. In its cyber security 500 list of the world’s hottest and most innovative cyber security companies, FireEye came in first.
While FireEye may be the hottest, its stock is the ugliest. The share price of FireEye was down 35% last year while the NASDAQ 100 Technology sector has declined 2.8%. Since hitting an all-time high at $97.35 on March 2014, the stock is down 82%. The stock hit all-time lows on February 12th – the day after the fourth-quarter earnings report – at $11.35. Since then, the share price is up 55% at a current price of $17.60.
In May 2014, FireEye acquired nPulse Technologies, a privately-held network forensics firm, for $56.6 million. nPulse specialized in the analytics of a cyber attack and how the attacks may have affected the networks. nPulse was a partner of FireEye prior to the acquisition. It seems FireEye benefited from the partnership with nPulse. The combination of Mandiant and nPulse gives FireEye an all-encompassing security framework.
In January 2016, FireEye acquired iSIGHT Security, a cyber threat intelligence solutions provider, for $200 million. iSIGHT is memorable for its discovery of a zero-day vulnerability – a hole in a software that is unknown to the vendor – affecting Microsoft (NASDAQ:MSFT) devices. It was used by Russian hackers to hijack and snoop on computers and servers used by NATO, the European Union, telecommunications and energy sectors.
In February 2016, FireEye acquired Invotas, a small company based in Virginia focusing on security automation and orchestration. The terms of the deal were not disclosed. FEYE said it plans to integrate the security orchestration capabilities from Invotas into the FireEye global threat management platform, “giving enterprises the ability to respond more quickly to attacks through automation,” and help customers deal with the “severe shortage of resources by automating the security process and building intelligence into their operations.”
FireEye expects iSIGHT and Invotas to add approximately $60 million to $65 million to 2016 billings and approximately $55 million to $60 million to 2016 revenue. That alone would bring 7.52% to 8.15% growth to the billings Y/Y. Revenue would grow 8.83% to 8.63% Y/Y.
For the year ending December 31, FireEye expects revenue from $815 million to $845 million and billings from $975 million to $1.1 billion. If the revenue grows as expected, it represents a growth of 31% to 36% Y/Y, and the billings would grow 22% to 32% Y/Y. After subtracting the revenue growth from iSIGHT and Invotas, organic growth would range from 22.85% to 28.48%. Of course, that does not include other acquisitions. The question is what is FireEye’s real organic growth?
DeWalt believes bringing FireEye, “Mandiant, iSIGHT and Invotas together, we’ve created a cyber security like no other, one with a suite of leading technologies, world-class cyber security expertise, and nation-grade threat intelligence, all brought together to form a comprehensive threat management platform.”
At the end of 2015, the company had $402.1 million in cash and cash equivalents, up from $146.4 million in the end of 2014. With short-term investment – which can be liquidated in less than a year – of $767.8 million, total cash and ST investment adds up to $1.17 billion, an increase of 190.86% from $402.2 million in 2014. Most of the increase in total cash can be attributed to the issuance of debt last year. In 2015, FireEye issued a total debt of $896.5 million. It currently has $706.2 million in debt, which I expect to increase as the company continues to lose money.
FireEye believes the existing “cash and cash equivalents and short-term investments and any cash inflow from operations will be sufficient to meet our anticipated cash needs, including cash we will consume for operations, for at least the next 12 months.” But, I do not take its word for it, considering the company loses about $135 million every quarter, or $500 million in a year. In addition to the issuance of debt, total stockholders’ equity decreased to $1.04 billion in 2015 from $1.25 billion in 2014, as the amount of common shares increased 8.8 million to 162 million. As FireEye continues to lose money, it is possible it might do a secondary offering, which will dilute shareholders’ equity further.
One sign that FireEye is investing into the future is its workforce. At the end of 2015, FireEye had approximately 3,100 employees, up from 2,500 in 2014 and 1,678 in 2013. Growing workforce shows the company is optimistic in the future. Make no mistake, FEYE is clearly positioning itself to take a bigger share of a growing industry.
I believe FireEye is a great company that has the potential to succeed in the growing security market. But, it is too early for me to be optimistic in its future stock performance, as it continues to lose money and possible secondary offering this year.
FireEye is due to report its first-quarter earnings on Thursday, May 5th.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: All information I used here such as revenue, etc are found from FireEye’s official investor relations site, SEC filings, and Bloomberg terminal. The pictures you see here including “FireEye’s Key Financials and Growth Rate” and “STAP Revenue – 2011-2019 ($M)” are my own.
In this post, I will be giving an update on the investment ideas I wrote about.
Note: “Average price” includes Dividend Reinvestment Plan (DRIP) – the dividends I received were used to buy additional shares in the company.
On February 16, 2015, I wrote about Microsoft (NASDAQ: MSFT) and believed it was a strong buy. Ever since then, MSFT is up 19.07%, from $43.95 to $52.33 (dividends not calculated). On December 29, 2015, MSFT reached $56.85, the highest since 2000. I do not own the shares of MSFT. Yes, I did miss the opportunity. At the time, I couldn’t afford it to buy enough shares and cover the commission fees.
On April 12, 2015, I wrote about General Electric (NYSE: GE) and believed GE was also a strong buy (it still is). Ever since then, GE is up only 1.39%, from $28.06 to $28.45 (dividends not calculated). On December 28, 2015, GE reached $31.49, the highest since May 2008. I do own the shares of GE. I bought it in August 2014. The average price I own at is $25.87. I’m currently up 9.97%.
Last summer, I wrote about Cisco Systems (NASDAQ: CSCO) (article part 1 and part 2) and believed it was undervalued (it still is). Ever since then, CSCO is down 11.47%, from $27.99 to $24.78 (dividends not calculated). I do own the shares of CSCO. I bought it in August 2014. The average price I own at is $24.73. I’m currently up mere 0.2%. I will take advantage (buy more shares) of lower prices.
On November 21, 2015, I wrote about Eli Lilly (NYSE: LLY) and believed it was overvalued (it still is). Since then, LLY is down 3.85% from $85.50 to $81.25 (dividends not calculated). I’m not short on LLY. I cannot afford to short it, due to my capital.
On December 26, 2015, I wrote about GoPro (NASDAQ: GPRO) and believed it is a buy (it still is). Since then, GPRO is down 12.10% from $18.34 to $16.12.
Ahh! GoPro (NASDAQ: GPRO). A stock that gravity took over. It crushed from $98.47 (early October 2014) all the way down to $15.90 (mid December 2015). Boy, was Citron Research right, when they predicted share-price would drop to $30 within a year, in November of the last year.
And what now? Is this end of GoPro or is there more?
As for me, I’m very skeptical of the market. I’m someone who loves to go against the investments of the crowd.
For example, when the Alibaba (NYSE: BABA) was launched, I was convinced that the market was hyped about it and I didn’t find any intrinsic value in BABA’s share price. Recent market sentiment about GoPro is SELL SELL SELL!!! Me being the skeptic, I say BUY BUY BUY!!!
And it’s not just because of my skepticism of the market, but because of Karma and more.
Karma is coming in 2016 for the short-sellers of GPRO. So take your profit while you can. GoPro has planned to launch its first drone, Karma in 2016. The introduction of a drone will expand camera maker’s product line, beyond making action cameras.
GoPro founder and CEO Nick Woodman said at the TechCrunch conference in September that the company is planning to launch a drone in the first half of 2016, “development is on track for the first half of 2016. We have some differentiations that are right in the GoPro alley.” Karma is finally coming.
Hollywood is eager to change the way they take aerial shots. Not long ago, they used helicopters (some still do) to shoot from bird’s point-of-view and it costs a lot. Drone makes it all cheaper. Not only cheaper, but also safer and opens more creative ways of shooting a video. In other words, drones can do what helicopters cannot do.
On May 28, GoPro announced at Google’s I/O conference that it will build a 360-degree camera array for stereoscopic spherical videos. With the help of Google Jump, Google’s virtual reality system, GoPro’s camera array, Odyssey can make videos like this. I believe the Odyssey can be very useful for real estate market. “360-Degree Real Estate Tour – Brought to you by GoPro.”
Oh, did I mention Odyssey has 16 cameras that work together as one? I repeat, 16. Hey GoPro, why don’t you knock out your useless and wasteful $300 million buyback program out of the park? According to its third-quarter SEC filing (10-Q), GoPro stated,
“To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.”
They spend 345x more on buybacks than they do on research and development. So GoPro, eliminate your worthless buyback program. “Customize” the money into research and development, and acquisitions. Customize the Odyssey. 16 cameras? Really? Reduce the size and improve the quality.
I strongly believe GoPro should acquire a small thermal imaging company. Thermal imaging can be a perfect fit for drones. I suggest GoPro acquires Seek Thermal, designer and manufacturer of high quality thermal imaging products. If GoPro acquires Seek Thermal or a different thermal imaging tech company, they will be able to reach sectors such as firefighting and agriculture. Diversified!
Another great acquisition can be Vuzix (NASDAQ: VUZI), a Google Glass rival, and a leading developer and supplier of smart glasses and video eyewear products in the consumer enterprise and industrial markets. Vuzix holds over 41 patents and 10 additional patents pending. Market cap. is currently $104.39 million. With $513 million cash on hand, GoPro can afford the acquisition. In January, Vuzix received a $24.8 million investment from Intel (NASDAQ: INTC). Intel bought preferred stock that is convertible into common shares equivalent to 30% of Vuzix.
In the third-quarter, GoPro’s revenue increased 43% year-over-year (Y/Y) to $400.3 million. On non-GAAP basis, its net income, operating income, and operating expenses increased 103.9% Y/Y, 71.7% Y/Y, and 44.3% Y/Y, respectively. On GAAP basis, it increased 28.58%, 105.36%, and 43.78%, respectively. The growth isn’t bad for a company with a market cap. of $2.49 billion. However, its inventory days increased 80.6% Y/Y from 67.7 to 122.3.
There are buyout rumors and one of the potential suitors being Apple (NASDAQ: AAPL). While this is a great news, it is not likely to happen in the first half of 2016. I believe the management of GoPro would not want to sell the company until they see the outcome of Karma. If the outcome is positive, the company will not be sold next year. If it is negative, the company will be sold unless they have something up in their sleeves. Management’s actions should a sign of what’s to come.
I’m confident the founder of GoPro will turn things around next year. GoPro can be a leader in its field if it eliminates the buyback program and invests into the future. According to Futuresource Consulting, the global action camera market grew by 44% Y/Y in 2014. It is expected to grow at a compound annual growth rate (CAGR) of 22.2% between 2014 and 2019. GoPro should target not only sport enthusiasts, but the film and television industry, real estate, and other sectors such as, firefighting and agriculture. In order to do that, GoPro should first create a product that suits the sector’s needs. First impressions are important.
Disclosure: I’m currently long on the stock, GPRO, at this time (December 26, 2015).
Note: All information I used here such as revenue, net income, etc are found from GoPro’s official investor relations site and its SEC filings.
Disclaimer: The posts are not a recommendation to buy or sell any stocks, currencies, etc mentioned. They are solely my personal opinions. Every investor/trader must do his/her own due diligence before making any investment/trading decision.