Tech IPO market needs stellar debut from Pure Storage
The tech IPO market has been nearly invisible lately -- only one tech company went public last quarter, cybersecurity firm Rapid7 (RPD). That's the slowest quarter for tech IPOs since the first quarter of 2009, more than six years ago, according to Renaissance Capital.
But things could be getting back on track for tech, starting this week when Wall Street welcomes Pure Storage (PSTG), which makes fast network storage equipment for big companies including LinkedIn (LNKD), Samsung and ConocoPhillips (COP).
The company is growing quite quickly. Revenue of $196 million over the most recent 12 months was four times the amount of revenue in the prior year -- and on a pace to reach $300 million of revenue for 2015, only its third year in business.
Such rapid growth is accompanied by huge losses as well -- the company lost $202 million over the past 12 months. And while some startups with big losses are pouring money into marketing to get new customers as fast as possible, Pure Storage is also in a very competitive hardware niche -- flash-based storage -- that requires huge spending on R&D. Over the past 12 months, it spent $112 million on R&D, more than triple what was spent the year before, and $176 million on sales and marketing, again more than triple the year before.
Pure Storage is also one of the 140 or so unicorns, as venture capitalists call them -- private startups valued by their investors at $1 billion or more.
To really get the tech IPO market back to robust levels, many more unicorns, and perhaps some of the much better-known unicorns, need to file to go public. Those include companies like Uber, already valued at more than $50 billion, Airbnb, valued at $25 billion or Snapchat, valued at $16 billion. They're all waiting in the wings, but it would probably take some pressure from their investors, along with a more positive stock market for tech companies, to draw them to the IPO queue.
Several unicorns went public earlier this year at prices that valued the companies at less than their earlier private funding rounds, discouraging others from following. Cloud storage service Box (BOX), New Relic (NEWR), which makes cloud-based analytical software, and data center software provider Hortonworks (HDP) all went public below their private valuations.
Pure Storage was last privately valued at $3 billion, according to CB Insights. It's planning to go public at a value of $3.0 to $3.3 billion, or $16 to $18 per share. Without stronger demand pushing the per share price and valuation higher, it may not offer enough of an incentive for other private companies to take the IPO plunge.
