Sourcefire Blows Hot and Cold in IPO

The network security outfit dipped below its $15 offering price before turning positive in its public debut Friday

Sourcefire (FIRE) on Mar. 8 became the latest company to get off to a rocky start in an equity market of jittery investors. The stock dipped below its $15 offering price on its first day of trading before recovering into modestly positive territory after the company raised $71.8 million in an initial public offering.

Martin Roesch, the creator of open source security technology called Snort, founded Sourcefire in 2001. The company's offering aims to prevent threats to a computer network such as viruses before, during and after the attacks, so that technology staffers don't have to scramble constantly for new software to patch their problems. Sourcefire has already raised more than $54 million in recent years from Meritech Capital Partners and other venture capitalists.

The Columbia (Md.) network security company priced 5,770,000 shares of stock -- 450,000 of which were being offered for shareholders -- at $15.00 per share late Mar. 7, according to a press release. The offering was led by Morgan Stanley (MS) and Lehman Brothers (LEH). The company had originally proposed selling shares in the $12 to $14 range, according to Renaissance Capital's The stock was trading at $15.63 in the early afternoon on the Nasdaq, up 4.2%. It slid from an earlier high of $16.45 per share.

The company warned in its prospectus that as it has had operating losses since its inception and expects operating expenses to increase in the foreseeable future, "we may never reach or maintain profitability."

Sourcefire faces intense competition from larger players. The world is already teeming with security service providers ranging from McAfee (MFE) to Symantec (SYMC).

Sourcefire hits the market during volatile times. A 9% stock market sell-off in China on Feb. 27 prompted sharp drops almost everywhere else around the globe. Investors have been uneasy since.

And the IPO market has not been the frindliest place of late. After much hype ahead of its initial public offering, the Kirkland, (Wash.) wireless high-speed Internet service Clearwire (CLWR) gained value early but then lost its gains in its first day of public trading Mar. 8 (see, 3/8/07, "Weak Signals from Clearwire IPO").

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