The tech unicorn Nutanix Inc. (NASDAQ: NTNX) just opened the door for other tech companies.
It’s been a slow year for IPOs and an especially slow year for tech IPOs. The biggest factor is current market uncertainties. Tech companies are hesitant about making a public offering if the market is in a slump.
Additionally, there haven’t been any IPO success stories. Shares of the payment company Square (NYSE: SQ) and storage firm Box (NYSE: BOX) have seen their valuations decline and are now trading between $11 and $17 — both of those companies had their IPOs in the past year.
Right now, there seems to be no real incentive to go public.
Well, that was until Nutanix’s recent IPO success, which has probably changed the minds of a few tech companies that were contemplating a 2016 IPO.
Nutanix’s Initial Public Offering
Nutanix’s market debut happened this past Friday, September 30th, and immediately the stock soared. By the end of the day, it became the largest tech IPO of 2016 — beating the Twilio Inc. (NYSE: TWLO) June IPO.
It entered the market with an IPO price of $16 and a valuation of $2.18 billion.
On Friday, it opened up with $26.50 and closed the day out trading up at $37.00, 131.3% above its original IPO price. Initially the company was hoping to bring in around $209 million, but with the higher stock price, it ended up raising $238 million.
And it was still on an upward trend when the market opened on Tuesday morning — trading at $43.10.
Goldman Sachs Group, Morgan Stanley, JPMorgan Chase & Co, and RBC Capital Markets were underwriters for Nutanix’s offering.
Nutanix plans to use the proceeds from its IPO for general corporate purposes and potentially for acquisitions, which will be a healthy way to continue to grow in its competitive industry.
In a prepared statement on the day of Nutanix’s IPO, Dheeraj Pandey, Nutanix’s CEO, said this:
Today’s listing marks an important milestone on our journey as we continue to revolutionize the next generation IT infrastructure and computing that will help our customers realize the full potential of the Enterprise Cloud.
About the Company
Nutanix is a software company based in San Jose, California, that sells hyper-converged infrastructure appliances. It provides IT infrastructures with a cloud platform that delivers the agility and economics of a public cloud but with the security and control that’s found on on-premise infrastructures.
As of July 31st, Nutanix had 3,768 end-user customers, which includes 310 global 2000 enterprises such as Activision Blizzard, Best Buy, Jabil Circuit, Kellogg, Nintendo, Nordstrom, Toyota Motor of North America, and the U.S. Department of Defense Office of the Secretary of Defense. The year prior, it only had 1,799 end-user customers.
Its sales rose 84% by the end of its 2016 fiscal year to $444.9 million. It had a healthy gross margin of 61.5%, but even with a health growth margin, it’s losing a significant amount of money because of heavy sales and research and development. Its net loss rose to $168.5 million in fiscal 2016.
With that being said, it’s worth mentioning that strong billings allowed for improved free cash flow. The company began the fiscal year with negative $49 million to negative $38.7 million. For a company that’s growing, it does have some debt, but it’s still growing and relies heavily on software subscriptions.
What Does Nutanix’s Success Mean for Other IPOs?
What’s behind Nutanix’s IPO success? And what does its success mean for other high-valued IPOs?
Nutanix was heavily invested ($300 million) by venture capitalists like Khosla Ventures and Lightspeed Venture Partners. It also entered the market with a reasonable share price of $16. And on top of that, Friday’s market was actually looking pretty decent.
These factors definitely played important roles in the stock’s 131% gain in one day.
But the really crucial component of a company’s triumph in the market is its plans for the future. Does it have the ability to gain a portion of the market share? Can it rise above its competitors?
Because that’s what guarantees continued gains, rather than what could be seen as “beginner’s luck.”
It’s very important with IPOs to do your research about a company because that research will help you out when you’re trying to decide if a stock is the right investment for you.
Don’t buy into the hype of a success story, but instead do your research.
Until next time,
Jennifer Clark
Pro Trader Today