Pure Storage, Inc. IPO Could Be the Best of 2016
Pure Storage, Inc. (NYSE:PSTG) is an enterprise storage company that develops flash storage arrays as substitutes for old school disc storage and traditional hard drives. The company is set to make its stock market debut in an initial public offering (IPO) Wednesday, following the much-hyped IPO of the cloud-based enterprise solutions company, Box, Inc. (NYSE:BOX) earlier this year. Here’s what investors need to know about the upcoming Pure Storage IPO.
Will Pure Storage’s Upcoming IPO Top the Charts in 2016?
What is Pure Storage’s Business?
Pure Storage uses a three-pronged integrated platform, including a flash-based software environment called “Purity Operating Environment,” an all-flash array (AFA) hardware called “FlashArray,” and a cloud-based management and support system that it calls “Purel.” The company boasts 10 times better performance for its flash devices than traditional disk storage. According to the company’s CEO, Pure has found ways to curtail costs in order to make their flash arrays economically competitive with traditional disk storage. The company has massively grown since 2012 and today serves over 1,100 customers.
Tech companies have relatively done better this year, surpassing energy, utilities, and materials companies. All eyes are not set on this tech startup, which is privately valued at $3.0 billion, whether it can do better than other enterprise storage companies, like Violin Memory, Nimble Storage, and Box, which have all tanked following their IPO highs.
|IPO Date:||October 7, 2015|
|Shares Issued||$25.0 Million|
|Estimated IPO Price||$16.00-$18.00|
How Much Money will Pure Storage Raise?
Pure Storage is expected to raise $425 million from its IPO. The company expects to receive 392.5 million after paying off all IPO-related costs and plans to use the proceeds for expansion purposes and for acquisitions and investments in complementary businesses.
Who are Pure Storage’s Largest Shareholders?
Sutter Hill Ventures (27.4% stakes), Greylock Partners (17.3%), Redpoint Ventures (5.7%), and individual stockholder John Colgrove, founder and CTO of Pure Storage (8.5%).
Who are Pure Storage’s Major Competitors?
Pure Storage’s biggest rivals include EMC Corporation (NYSE:EMC), International Business MachinesCorporation (NYSE:IBM), NetApp, Inc. (NASDAQ:NTAP), Nimble Storage, Inc. (NYSE:NMBL), and Violin Memory, Inc. (NYSE:VMEM).
What are the Biggest Threats to Pure Storage’s Business?
The company derives all of its revenues from one product: the FlashArrays. A lack of diversification may prove to be fatal for the company.
Does Pure Storage Have a Competitive Edge?
Pure Storage is well-positioned in the all-flash array (AFA) market. According to the International Data Corp. (IDC), Pure holds the second-largest market share after EMC, and is followed by IBM. Currently these three are the market leaders in AFAs. IDC reports that the data storage industry is expected to grow from the present $24.0 billion to over $27.0 billion by 2018. This delivers a positive outlook for the company’s business. (Source: Demystifying Recent All Flash Array Industry Market Share Reports, Pure Storage Blog, October 12, 2015.)
What is Pure Storage’s Target Market?
For the first two quarters of this year, the company generated three quarters of its revenues locally, making the U.S. its primary target market.
(Source: Demystifying Recent All Flash Array Industry Market Share Reports, Pure Storage Blog, October 12, 2015.)
How Profitable is Pure Storage?
Pure Storage has seen hyper-growth in revenues by 603% and 308% in the last two years, respectively. However, the company has reported year-over-year losses because of massive expenses related to R&D and sales and marketing. Pure’s cutthroat pricing against competitors to win market share also contributes to these losses.
|FY 2012||FY 2013||FY 2014|
|Net Income (Loss)||($23.4M)||($78.6M)||($183.2M)|
Here’s the Bottom Line on Pure Storage’s IPO
Pure Storage’s aggressive strategies might prove to be destructive for the company in the long run. It remains to be seen how the leadership is going to make use of the raised capital—for a more aggressive expansion at the cost of negative earnings or for a reasonable expansion strategy. It also remains to be seen whether the company can diversify its product portfolio with the spiking R&D expenses. I would wait to see its post-IPO performance before jumping on the bandwagon.