How Hackers Killed This Company’s Billion Dollar IPO

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Did you notice anything different about the people around you this week? Anyone at work seemingly a little off colour? And friends a little withdrawn, quieter than usual? Maybe even (god forbid) your partner is being vague and evasive?

Let’s not beat around the bush here. This week 37 million cheaters around the world got served a big dose of karma.

Well I say karma. But in all reality it was a specific cyber attack. But not just at any old website. Not just your run of the mill social network. No, no, no. This attack was on the world’s largest dating site…for married people wanting to have an affair.

Yep, these sites really exist.

I’m hoping you have no idea what Ashley Madison is. If you’re oblivious to its existence, let me fill you in.

It’s an online dating site for married people. For people wanting to ‘do the dirty’ on their significant other. You’d think there probably isn’t much of a market for an online affair site. Well you’d be wrong.

The kind of information cheaters don’t want in the open

Ashley Madison has around 37 million registered users. And just so you’re well aware, it’s not just a website full of men. Ashley Madison says their ratio of women to men is about 40:60.

Some of the statistics Ashley Madison provides about their users are very interesting. Apparently Monday’s are the best day for new registrations. On average a Monday will see around 35,000 new registrants.

Furthermore, after major holidays or special occasions (Mothers Day, Fathers Day, Christmas) there’s a spike in registrations. Peak search times are between midday and 2pm. Peak chatting times are that same day around 10pm. Peak meeting times are typically the day after initial contact at lunchtime, also between midday and 2pm. And peak affair time that evening between 5pm and 8pm.

Wow. Just wow.

That’s a lot of information Ashley Madison holds about their users. Don’t forget they also have information like names, personal info (height, weight, age, sexual preferences, etc.) and of course credit card details…as in real names and addresses.

That’s the kind of information users don’t want to get out in the open. No one does really, but particularly people trying to have a secret affair.

But nothing online is safe from the grasp of cyber attackers.

Prophecies from the spreadsheet of a CTO

And this week a group gong by the name ‘The Impact Team’ hacked Ashley Madison. They stole user details and are threatening to release the information onto online chat boards.

Uh oh.

The Impact Team has one simple demand. Shut down Ashley Madison and Established Men. Established Men is another, morally questionable, site that the owners of Ashley Madison, Avid Life Media (ALM) also own and run.

One of the leaked documents was an employee questionnaire. One of the questions was, ‘In what area would you hate to see something go wrong [with the company]?’

ALM’s Chief Technology Officer, Trevor Stokes answered, ‘I would hate to see our systems hacked and/or the leak of personal information.’

Prophetic isn’t it?

But this isn’t where the real story lies. Not the attack itself. Not even the kind of site under attack. But the market ramifications this has in the fallout.

You see, Avid Life Media was planning on going public. They had all intent and purpose to publicly list. Valuations had the company worth somewhere around US$1 billion.

Chances are the likelihood of ALM going public is pretty slim now. And it’s all because cyber attackers decided they didn’t like what the site stands for.

Imagine if ALM was already on the NASDAQ or NYSE. If attackers did this to a public company it would send share price plummeting. No doubt about it.

But what if the attackers had decided to short the stock before the attack? They could stand to make serious money in the event of the stock plummeting like that.

And then perhaps they would buy the stock at deflated prices, only to ‘release’ the company from ransom. The stock recovers, and the attackers make even more money.

This is a reality of modern markets. And it’s a legitimate market threat to public companies. It could happen to any company with a significant risk of cyber attack.

The story really you need to think about

Imagine if a sophisticated hacking group shut down the online systems of say…the Commonwealth Bank [ASX:CBA]. If all Netbank systems, POS terminals and ATMs went down. And the attackers held CBA to ransom for $5 million. Meanwhile, they were profiting from earlier shorting the stock, and buying at deflated prices.

Of course the CBA wouldn’t pay. The hackers would still make their money on the market. And eventually they would disappear into the Deep Web.

The same kind of risk could be said for Telstra [ASX:TLS], BHP [ASX:BHP] or Sydney Airport [ASX:SYD].

This potential market-influencing cyber attack is a real threat. It’s an example of how a digital world attack can have ‘real world’ impact.

I’ve been trying to tell you for some time how big a risk this is. However, it’s not all risk. What I mean by that is there are also opportunities.

You see a company like ALM, or any of the ASX listed companies above, doesn’t want to be a victim of cyber attack. It’s bad for business.

That’s why they’re bringing on the best of the best when it comes to their own cyber defence. The opportunity for Aussie investors is that some of the world’s best cyber defence companies actually exist on the ASX.

They’re signing multimillion dollar contracts to provide elite level, near-impenetrable cyber defences. It’s such a huge opportunity that one of the Aussie cyber defence stocks I recommended in October last year is already up 363%.

And all this means you need to consider a new risk when buying any stock. What is the risk of cyber attack? It’s as important as financial risk, management risk and competition.

You also need to think about the measures companies have in place for protection. Who are their ‘hired help’, so to speak? Any company that doesn’t have some kind of cyber risk management plan in place is one you’ll want to avoid.

It’s a scary new world. One that has even more risk for investors. But if you’re investing in opportunities these risks present, then you just might make it out alive, and possibly rich.

Regards,

Sam Volkering,

Editor, Revolutionary Tech Insider

Ed Note: This article was originally published in Money Morning.

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Sam Volkering
Sam is Editor for Money Morning and it's small-cap and technology analyst. He spends his time hunting down the most exciting stocks on the planets, whether they’re potential-packed volatile small-caps or tech firms transforming our future through cutting-edge technologies. You can find more of Sam’s work over at Australian Small-Cap Investigator, where he shares the best small-cap stocks he finds on the ASX, or at Revolutionary Tech Investor where he reveals the latest breakthrough tech investment he’s discovered.
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