Ruckus Wireless has finally priced its IPO: it will sell 8.4 million shares at a price of between $13 to $15 per share. According to Forbes, the company will have 73,685,793 shares outstanding, and at the midpoint of the range, the company would have a market cap of $1.03 billion. In the Forbes article, Eric Savitz calculates the following: “In 2011, the company generated 34% of revenues in the fourth quarter; if you make the assumption that the same pace is likely in 2012, you’d get full year 2012 revenues of a little over $230 million. That would put the valuation of the company at a little over 4x revenues, which seems reasonable given rival Aruba Networks trades for about 3.4x expected 2012 revenues.”
For anyone thinking of buying Ruckus Wireless shares at the IPO or later, here’s a caveat I mentioned in my previous post about the Ruckus Wireless IPO:
If the economic climate outside North America worsens, it will have a huge impact on Ruckus Wireless revenues since a lot of those revenues come from outside the US and Canada. The other major threat to Ruckus’s business is commoditization.
It is clear that Ruckus is being very opportunistic in its timing to go public. It is using the recent increased sales and profits, as well as improving (stock) market conditions, to go public without delay. Since the company does not have a long track record of profitability, a prospective investor will have to believe in: (a) dramatic growth in the demand for carrier class Wi-Fi offloading, outdoor Wi-Fi networks, and network capacity management; (b) Ruckus’s continued ability to elbow out other competitors; (c) slow rate of commoditization of Wi-Fi equipment; (d) rapid growth in the Asian and Latin American economies (many of which have stalled); (e) quick turnaround in economic conditions in Europe. That’s a lot of variables that need to come together for the value of your Ruckus Wireless shares to grow at a rate that will compensate you for the risk you are taking on a new company and the opportunity cost of not having invested that money in something that will give you a better return.
Moreover, the recent stock price performance of Ubiquiti (UBNT) and Aruba (ARUN) have been dismal. See the charts below for the past year.
Companies that have gone public recently in the technology space — Zynga, Facebook, Groupon — have been very disappointing and anyone who bought at the IPO price and held on to the shares in those companies, has lost a lot of money.