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This is the one of the better offering of the recent times on
account of two things, one company has got great growth
potential, second the funds raised from this offering will be utilize by the company as against
other recent offering which just gives exit route to existing
owners of the company.
"Netezza Corporation" is offering 9,000,000
share in price range of $9.00 and $11.00 per share.
Company is a leading provider of data warehouse appliances
(servers) and related service. But unlike traditional data
warehouse systems, Netezza data warehouse appliance are specifically designed for analysis of
terabytes of data, that
is, it not only provides appliances for data storage but it
provide a complete, compact and easy to install solution
by which its customers can store, access, analyze & sort
their data in a faster, cost effective and easier way. In this
business company competes with biggies like IBM, EMC,
Hewlett-Packard, Sun Microsystems etc.
Company intended to use the part of net proceeds to it from this offering to repaying debt of nearly
$9 million and remaining proceeds for working capital and
other general corporate purposes, including the development of
new products, sales and marketing activities and may also
consider a acquisition.
Financials
Company financial year ends on January 31
In
fiscal ended January 31, 2006 company earned revenue of 53.80
million, gross profit of 31.4 million and operating loss of
14.3 million.
In
fiscal ended January 31, 2007 company earned revenue of 79.62 million,
gross profit of 47.52
million and operating loss of 8.25
million.
In
Quarter ended April 30, 2006 company earned revenue of 12.00 million,
gross profit of 7.10
million and operating loss of 4.34
million.
In
Quarter ended April 30, 2007 company earned revenue of 25.34 million,
gross profit of 15.30
million and operating loss of 1.90 million.
Company
reports its business revenue under two segments products and
services with nearly 80% revenue generated from products and
rest from related services
Company
generates nearly 80% of its revenue from North America.
Company/Business
Outlook
Data warehouse business is growing at rapid pace and expected
to keep or rather extend its pace in future. Netezza will be
benefited from this growing demand and also will be benefited for
replacement of traditional data warehouse appliances.
Although Netezza's gross margins are as high as 60%
still at operating level its a loss making company, mainly due
to high sales and marketing expenses, but benefit of these
expenses is clearly reflected in its ever rising revenues
which have been growing at above 40% per year in last two
years. High spending on Sales and marketing help company
to not only grew its revenue but also enable it to build up a
highly impressive clientele for itself which includes Amazon.com,
AOL, American Red Cross, CNET Networks, Neiman Marcus Group,
Orange UK and many more. This clientele itself is a indication that company's
size is not a constrain in wining big clients. Significant
part of company's business come from repeat orders which
reflects quality of its products and services. Most impressive
thing about company's financials is, that with rise in revenue
company cut its operating losses from 26% in FY2006 to 10% in
FY2007 and further to 6% in 1st quarter of FY2008. At this
pace with operating margins intact, Netezza can be a profit
making company by end of current fiscal.
Valuation/Offer
value ($ in million)
(Company may not be able
to perform this well, chances of company performing this well
is, three out of five)
Assume that company shows (without considering any
acquisition)
1. 60% percent rise in revenue year on year in FY 2008 and FY 2009 from $80 in FY 2007 to $127 in FY
2008 and to further $204 in FY 2009.
2.
Gross margins remain intact at about 60% (every % decline in gross margins will
effect operating margin to that extent).
3.
Operating profit margins at
7% and 17% in FY 2008 and FY 2009 respectively
This leave company with operating profit of $ 8.9 and
$35 in FY 2008 and 2009 respectively and after detecting
interest cost of nearly $.1 and $.1 and income tax @ 35% this
leave company with net profit of $5.77 and $22.75, that is EPS
of $ 0.10 and $ 0.41 for FY 08 and FY 09 respectively.
This
means even if the company
perform exceptionally well (without considering any
acquisition), at offer price of $10 company's share is
available at one year forward PE of nearly 100 and two year
forward PE of nearly 25.
We rate this IPO 3 on scale of "1 to
5" (5 for best)
Negatives
-
Company's
loss making history.
-
Presence
of very big, highly capable competitors like EMC, IBM etc.
-
Offer
price is on higher side.
-
Company’s
small size.
-
Gross
margins are high and can decline.
Positives
-
High
growth rate of company as well as industry.
-
Any
acquisition will accelerate this growth rate further.
-
Very
healthy balance sheet.
-
Possible
breakeven in near future.
-
High
gross margins.
-
Concentration
on single specialist business segment.
-
Funds
raised from this offering will give company more financial
strength to develop and market its products worldwide and
to compete with other big players more effectively.
This
article reflects personal view of the author about the company
and one must read offer prospectus and consult its financial
adviser before making any investment decision
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