Small-Cap Research. CYREN Ltd (CYRN-NASDAQ) CYRN: Zacks Company Report OUTPERFORM- New Products Gaining Distribution and Generating First Sales

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1 Small-Cap Research February 25, 2015 Lisa Thompson scr.zacks.com 10 S. Riverside Plaza, Chicago, IL CYREN Ltd (CYRN-NASDAQ) CYRN: Zacks Company Report OUTPERFORM- New Products Gaining Distribution and Generating First Sales Current Recommendation Outperform Prior Recommendation Outperform Date of Last Change 02/26/2014 Current Price (02/24/15) $ Month Target Price $5.00 OUTLOOK CYREN is an and web security software and SaaS vendor. Until recently, it sold only its technology to OEMs as an engine to eliminate spam, phishing etc. and in products such as Gmail and Checkpoint appliances, but it has just launched a new inexpensive, simple to deploy cloud-based service to be sold via resellers to small and medium businesses. Near term we expect losses, but once its cloud products ramp, growth should accelerate and the valuation should expand closer to its much more highly valued cybersecurity peers. SUMMARY DATA 52-Week High $ Week Low $1.45 One-Year Return (%) Beta 0.10 Average Daily Volume (sh) 308,475 Shares Outstanding (mil) 31 Market Capitalization ($mil) $90 Short Interest Ratio (days) 1.09 Institutional Ownership (%) 15 Insider Ownership (%) N/A Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 18.6 Earnings Per Share (%) Dividend (%) N/A P/E using TTM EPS NM P/E using 2015 Estimate NM P/E using 2016 Estimate 57.2 Risk Level Above Average Type of Stock Small-Blend Industry Internet-Software Zacks Rank in Industry 42 of 67 ZACKS ESTIMATES Revenue (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 8.1 A 8.0 A 8.4 A 32.8 A A 8.3 A 7.8 A 7.9 A 32.1 A E 8.1 E 8.5 E 9.5 E 34.0 E E Earnings per Share (EPS is non-gaap before non-recurring items) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.01 A -$0.01 A $0.00 A -$0.07 A -$0.05 A $0.05 A -$0.04 A -$0.02 A -$0.03 A -$0.14 A $0.02 E -$0.02 E -$0.02 E $0.00 E -$0.01 E 2016 $0.05 E Zacks Rank 3 Copyright 2015, Zacks Investment Research. All Rights Reserved.

2 WHAT S NEW Record Bookings Point to Upcoming Growth Q4 revenues and earnings, ex-one time items were almost exactly on target with our estimates. Non-GAAP revenues of $7.9 million were down 6% from last year, but up 1.4% sequentially. These revenues were impacted by currency as the company does 40% of its business in Euros and the Euro was down 11% in the quarter Non-GAAP gross margins were down to 77.4% versus 78.8% last year, but up from 76.7% in Q3 Non-GAAP operating expenses were up $1 million, but included $572,000 in one-time expenses. Taking those out, operating expenses were down $1.9 million versus last year. These one-time items were $300,000 for bad debt, $200,000 for litigation and an additional $72,000 for a provision for gross receipt taxes. The company reported non-gaap loss of $0.04, short of our estimate of a loss of $0.03, but if the one-time charges are taken out, it is a loss of $0.03 was target with out number. Q Revenues in Q1 are to be sequentially up from Q4 2014, but still down year over year. We are projecting non-gaap revenues of $8 million, still below the $8.1 million reported in Q Gross margins should be similar but expenses should be $0.5 million lower versus last year, but with slightly higher R&D spending. Despite the 18% higher share count, we expect non-gaap EPS loss to be somewhat less than Quarterly revenues should increase sequentially through out 2015 as new product sales ramp. By Q3 the company should be reporting revenue growth and by Q4 we expect the company may breakeven for the quarter. Gross margins are expected to trend around 77% as there is heavy web hosting expenses for the cloud solutions versus the company s traditional line of business. Expenses should be relatively flat. While we know that bookings keep increasing we believe that the company will give more substantial metrics some time in 2015 as to how the new products are doing. At some point the company may release number of active seats and average price per seat. At that point we believe evidence of traction could move the stock in advance of actual revenue recognition. For the year we are looking for revenues of $34 million, up 10% and for the company to show a loss for the year. Emerging Business Model As the company continues rolling out its new products we see a variety of pricing plans emerging. The products are priced per user and the larger the number of seats that are bought, the less expensive per user. For the lowest tier, with a small number of users, a basic web security plan may cost $28 per year. For a customer with a large number of seats, say over 10,000, that price can go down to $10 per year. This is the end user price; distributors and resellers will get 25-35% discount. Only when selling direct are these the revenues earned by CYREN. The company will eventually track both number of active users, as well as average revenue per user. Zacks Investment Research Page 2 scr.zacks.com

3 CWS Standard will cost $10-27 per user per year for greater than 5,000 users down to less than 50 users. CWS Plus, which includes Standard plus mobility and SSL capability will have a range of $14-38 per user per year CWS Cyber, which is Plus and the new cybersecurity module will be $24-48 per user per year. It will actually be sold as an upsell to Plus for an incremental $10-15 per user per year. The new cybersecurity module (Advanced Threat Protection) is expected to be released in Q3. It will be a feature upgrade for current users of CWS. In addition to these new products the company has also begun selling a new cyber intelligence service to its traditional OEM customers. The company has taken its access to billions of transactions a day and bundled that data into a product that its OEM customers can use to gain insight into threats and usable information around the globe By 2016, the company will find its place in the market and we expect even a few successes could propel revenues 25% given the market growth of 50% and the huge global market in the billions. In Q1 we expect the company to launch its cybersecurity offering as a standalone application. Combined with the 2015 products, we are expecting revenues to reach $44 million in 2016 and for the company to come back to profitability, freeing up cash to pursue business. Since the major launch will be over, we believe margins can recover and move to 5% net margins untaxed. However the company may decide to continue to spend to grow market share like most of the competitors in the industry who are more interested in rapid growth at the expense of profits. Should the company take that route, investors may have an even better return. Market Shifts are in CYREN s Favor The cloud based cybersecurity space is exhibiting high growth because of the increase in threats as well as the inability for appliances to protect users outside of the office. As the workforce become more mobile it becomes impractical to protect users by keeping them in corporate locations. Once attached to the Internet outside the workplace, there is no protection. However if the protection function is in the cloud, users are protected everywhere, IT needs to do less work, appliances and other equipment does not need to be bought and economies of scale kick in. While the company considers ZScaler its closest competitor, it believes it has an advantage over that company just by the huge volume of data it already collects from its base business. So while some services can protect you from a threat, at your company, CYREN can protect you from a threat that was receive elsewhere on the globe by someone else. In that way it can provide protection from something that has yet to threaten you. Zacks Investment Research Page 3 scr.zacks.com

4 INVESTMENT THESIS CYREN is moving from OEM sales that have generated $0.50- $1 per user per year, to end-user products that will generate $10-48 per user per year. If successful, this should accelerate revenues and earnings in 2015 and beyond which should translate to a higher valuation and higher multiples more in line with its public peers. Versus public comparable companies in the Internet security business, CYREN is considerably undervalued on an enterprise value to sales basis. This sector is experiencing increased investor attention due to the increasing occurrences of cyber attacks and security breeches in the news. It is believed that companies will commit higher spending to avoid these breeches in the future and the market will grow faster than previously thought. A number of high profile cyber security vendors such as Zscaler and Rapid7 are expecting to go public perhaps as soon as late ZScaler, its closest competitor, reported that in its last quarter revenues grew 56% and CYREN could start to show growth like that should it gain traction. These companies are much more highly valued than CYREN, and as a comparable, CYREN s stock could rise. CYREN operates in a large, high growth market. The Global Cloud Security Software market is forecast to grow at 48.46% CAGR over the period according to Tech Navio. The top three cloud security services that will contribute as the major market in cloud security services market are cloud IAM, security and web security (WAF). VALUATION Zacks Investment Research Page 4 scr.zacks.com

5 Web security vendors are at extremely high valuations, partially as a result of many high profile hackings in the news this year that have increased investor awareness of these providers. CYRN currently trades at a price of $2.86 that gives it a fully diluted market cap of $110 million, and an enterprise value of $103 million, or 3.0x estimated 2015 revenues. Were it to remain at that multiple by 2016, the stock would be worth $3.58 next year. Its peers trade from a range of 10.8x for Palo Alto Networks, to 2.5x for Symantec. The difference is primarily that PANW is expected to grow revenues 48% this year while Symantec s revenues are expected to be slightly down. Were CYRN to regain revenue growth, we believe its valuation could move up closer to its peers. Taking the average enterprise value to sales of the group, we get an average of 7.4 times. At that valuation CYRN would be worth $7.38 per share today. At the point when sales growth returns, we could see the stock move up closer to its peers. If these valuations hold in 2016, the stock could be worth over $9 twelve months from now. Taking a blend of the $3.58 and the potential for $9, we believe $5 is a reasonable 12-month price target. Web Security Companies Ticker Revenue EBIDTA Enterprise Value / Sales Company 2015E LTM Margin 2015E LTM Barracuda Networks CUDA $322 $266 3% 5.3x 6.4x Checkpoint Software CHKP $1,620 $1,500 54% 8.4x 9.0x FireEye FEYE $620 $426-89% 9.4x 13.7x Imperva IMPV $199 $164-32% 5.1x 6.2x Palo Alto Networks PANW $978 $662-13% 10.8x 16.0x Proofpoint PFPT $249 $196-19% 8.5x 10.8x Qualys QLYS $168 $134 33% 8.8x 11.0x Symantec SYMC $6,500 $6,620 29% 2.5x 2.5x Average -4% 7.4x 9.5x Revenue EBITDA Enterprise Value / Sales 2015E LTM Margin 2015E LTM CYREN $34 $32-5% 7.4x 9.5x Conclusion of Enterprise Value $276,939,475 Market Value $283,102,475 Fully Diluted Shares Outstanding 38,338,000 Price per Share $7.38 Zacks Investment Research Page 5 scr.zacks.com

6 Gartner Magic Quadrant Secure Web Gateways RISKS The company operates in a highly competitive industry. There are larger well-funded players with greater traction that could be difficult to take market share from. Customers may find the new products to be uncompetitive versus other more established offerings. The company may have difficulty penetrating new markets and reaching a new group of customers through the reseller channel or direct sales. Product rollouts and on-boarding of the new sales channel may take longer than expected and continue to push back financial estimates. The stock has doubled since November due in part the increased publicity of cybersecurity threats. This publicity could end or investors could consider the group already fairly valued. Zacks Investment Research Page 6 scr.zacks.com

7 INCOME STATEMENT Zacks Investment Research Page 7 scr.zacks.com

8 BALANCE SHEET $ In Thousands Dec. 31, 2014 Dec. 31, Yr-to-Yr 2013 % Change CURRENT ASSETS: Cash and cash equivalents $11,063 $3, % Trade receivables, net 4,444 5,178-14% Deferred tax assets % Prepaid expenses and other receivables 1,019 1,988-49% Total current assets 16,526 10,971 51% LONG-TERM ASSETS: Lease deposits % Deferred tax assets 13 0 NM Severance pay fund % Property and equipment, net 2,401 2,674-10% Goodwill and intangible assets, net 31,869 36,395-12% Total long-term assets 34,947 39,962-13% Total assets 51,473 50,933 1% CURRENT LIABILITIES: Credit line 4,900 3,245 51% Trade payables % Employees and payroll accruals 2,359 3,102-24% Deferred tax liability NM Accrued expenses and other liabilities 1,394 1,366 2% Earn-out consideration 2,269 1,428 59% Deferred revenues 4,097 4,499-9% Total current liabilities 15,785 14,499 9% LONG-TERM LIABILITIES: Deferred revenues 1,042 1,646-37% Deferred tax liability 1,984 2,749-28% Earn-out consideration 837 2,857-71% Accrued severance pay % Other liabilities 100 Total long-term liabilities 4,629 8,125-43% SHAREHOLDERS' EQUITY: Shareholders' equity 31,059 28,309 10% Total liabilities and shareholders' equity $51,473 $50,933 1% Current ratio % Net cash $6,163 $ % Zacks Investment Research Page 8 scr.zacks.com

9 HISTORICAL ZACKS RECOMMENDATIONS Zacks Investment Research Page 9 scr.zacks.com

10 DISCLOSURES The following disclosures relate to relationships between Zacks Small-Cap Research ( Zacks SCR ), a division of Zacks Investment Research ( ZIR ), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe. ANALYST DISCLOSURES I, Lisa Thompson, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice. INVESMENT BANKING, REFERRALS, AND FEES FOR SERVICE Zacks SCR does not provide nor has received compensation for investment banking services on the securities covered in this report. Zacks SCR does not expect to receive compensation for investment banking services on the Small-Cap Universe. Zacks SCR may seek to provide referrals for a fee to investment banks. Zacks & Co., a separate legal entity from ZIR, is, among others, one of these investment banks. Referrals may include securities and issuers noted in this report. Zacks & Co. may have paid referral fees to Zacks SCR related to some of the securities and issuers noted in this report. From time to time, Zacks SCR pays investment banks, including Zacks & Co., a referral fee for research coverage. Zacks SCR has received compensation for non-investment banking services on the Small-Cap Universe, and expects to receive additional compensation for non-investment banking services on the Small-Cap Universe, paid by issuers of securities covered by Zacks SCR Analysts. Non-investment banking services include investor relations services and software, financial database analysis, advertising services, brokerage services, advisory services, equity research, investment management, non-deal road shows, and attendance fees for conferences sponsored or co-sponsored by Zacks SCR. The fees for these services vary on a per client basis and are subject to the number of services contracted. Fees typically range between ten thousand and fifty thousand USD per annum. POLICY DISCLOSURES Zacks SCR Analysts are restricted from holding or trading securities placed on the ZIR, SCR, or Zacks & Co. restricted list, which may include issuers in the Small-Cap Universe. ZIR and Zacks SCR do not make a market in any security nor do they act as dealers in securities. Each Zacks SCR Analyst has full discretion on the rating and price target based on his or her own due diligence. Analysts are paid in part based on the overall profitability of Zacks SCR. Such profitability is derived from a variety of sources and includes payments received from issuers of securities covered by Zacks SCR for services described above. No part of analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in any report or article. ADDITIONAL INFORMATION Additional information is available upon request. Zacks SCR reports are based on data obtained from sources we believe to be reliable, but are not guaranteed as to be accurate nor do we purport to be complete. Because of individual objectives, this report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed by Zacks SCR Analysts are subject to change without notice. Reports are not to be construed as an offer or solicitation of an offer to buy or sell the securities herein mentioned. ZACKS RATING & RECOMMENDATION ZIR uses the following rating system for the 1126 companies whose securities it covers, including securities covered by Zacks SCR: Buy/Outperform: The analyst expects that the subject company will outperform the broader U.S. equity market over the next one to two quarters. Hold/Neutral: The analyst expects that the company will perform in line with the broader U.S. equity market over the next one to two quarters. Sell/Underperform: The analyst expects the company will underperform the broader U.S. Equity market over the next one to two quarters. The current distribution is as follows: Buy/Outperform- 15.5%, Hold/Neutral- 75.7%, Sell/Underperform business day immediately prior to this publication. 8.1%. Data is as of midnight on the Zacks Investment Research Page 10 scr.zacks.com