Jim Cramer on the peculiarity of why FireEye’s losses are helping it dominate the cyber security space:
But DeWalt responded two ways. First, he asked me to examine the cash flow which, while still negative, had managed to get better over the last couple of quarters.
Second, though, he said that he needed to spend more to meet the demand, the demand that comes from the almost daily hacks, like the one for that big Blue Cross Blue Shield outfit, CareFirst just experienced where FireEye was called in to find out what the heck was going on. Like the Sony (SNE), Home Depot (HD) and Target (TGT) hacks, where only FireEye seems to have the forensic technology to get to the bottom of the hack quickly.
Plus, the company isn’t just in the forensics business. It’s in the threat prevention game, too, and in order to be a dominant player in that end, you have to spend a ton of money and get the right, trustworthy people working for the company. These people are expensive and they don’t grow on trees.
He then explained that it took 18 months to get certified by the Department of Homeland Security to offer the highest level of liability protection available under current law. Or, in English, if you hire FireEye to protect you from cyber attacks you are indemnified by the government for losses, part of a strategy to force companies to take cyber attacks seriously.
It’s amazing that any company needs a carrot like that to protect themselves from lawsuits, but hiring FireEye does the trick even though, as you can imagine, getting the certification cost FireEye a lot of money and time.
FireEye, and Dave DeWalt in particular, are in this for one reason and only one reason: acquisition. They are hoping a larger company like Cisco acquires them just as Dave DeWalt had done to McAfee and its acquisition by Intel. This explains why they can spend so much without fear, because they know someone out there will acquire them at a huge premium thanks to their mind-share and stature in the cyber security business.
Disclaimer: I work for Intel Security, a FireEye competitor.