IPO Report: Pure Storage (PSTG)

Francis Gaskins |

pure_storage.jpg

Pure Storage’s (PSTG) mission is to deliver data storage that transforms business through a dramatic increase in performance and reduction in complexity and costs. It is based in Mountain View, CA.

Six other companies are scheduled for the week of Oct. 5. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Morgan Stanley, Goldman Sachs, Barclays, Allen & Company, BofA Merrill Lynch
Co-managers: Pacific Crest Securities, Stifel, Raymond James, Evercore ISI

End of lockup (180 days): Monday, April 4, 2016
End of 10-day quiet period: Saturday, October 17, 2015

PSTG scheduled a $425 million IPO with a market capitalization of $2.7 billion at a price range midpoint of $17 for Wednesday, Oct. 7, 2015 on NYSE.

Summary

PSTG’s mission is to deliver data storage that transforms business through a dramatic increase in performance and reduction in complexity and costs.

PSTG’s innovative technology replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory.

At the same time, PSTG’s innovative business model replaces the traditional forklift upgrade cycle with an evergreen storage model of hardware and software upgrades and maintenance.

Valuation


Glossary
Pre-IPO grade-score summary
http://gaskinsco.com/scr-rate.htm
Many IPOs in today’s environment are graded C+ and scored 7.
If the pre-IPO grade is below C+ or the score is below 7,
then our analysts may have some concerns about the company’s
outlook and/or its market segment.
If the pre-ipo grade is above C+ or the score is above 7,
then our analysts believe the company’s overall business outlook is very favorable.
C = unprofitable, C+ = profitable

Accumulated deficit (mm)

.

.

-$455

     

Per share dilution

.

.

-$23.71

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Pure Storage (PSTG)

$3,145

9.9

-13.9

5.7

5.8

14%

Annualizing 6 mos

         
             

Conclusion

Positive, C, 7.5

85% product sales, only 15% recurring support rev

167% top line rev growth rate

195% gross profit growth rate

Price to sales of 9.9, relatively high

P/E of -14 indicating moderately high cash burn relative to market cap

59% gross profit, many tech firms have a higher gross profit

Net loss is 84% of revenue, breakeven a long way away

Price to book of 5.7

Business

PSTG’s mission is to deliver data storage that transforms business through a dramatic increase in performance and reduction in complexity and costs.

PSTG’s innovative technology replaces storage systems designed for mechanical disk with all-flash systems optimized end-to-end for solid-state memory.

At the same time, PSTG’s innovative business model replaces the traditional forklift upgrade cycle with an evergreen storage model of hardware and software upgrades and maintenance.

PSTG’s next-generation storage platform and business model are the result of PSTG’s team’s substantial experience in enterprise storage and web-scale infrastructure, as well as frustration with the industry’s status quo.

This deep industry understanding led to the development of PSTG’s three-part integrated platform: the Purity Operating Environment, its  flash-optimized software, FlashArray, its modular and scalable all-flash array hardware, and Pure1, its cloud-based management and support. PSTG’s platform can deliver a 10X acceleration in business applications over legacy disk-based storage.

It is also designed to be compatible with existing infrastructure, substantially more reliable, and power and space efficient.

PSTG’s business model builds on its technical innovations to reverse the traditional storage business model.

Instead of moving data between old and new systems via forklift upgrades, PSTG keeps business data and applications in place and upgrade technology around it.

PSTG’s platform and business model are designed to add value to customers for a decade or more, reducing total cost of storage ownership while increasing loyalty.

PSTG’s innovations help rebalance the datacenter by closing the performance gap between legacy storage technology and servers and networks.

But it is the simplicity of PSTG’s platform and business model that is revolutionizing the enterprise storage experience.

Together, PSTG’s innovations have helped its customers realize the promise of the cloud model for IT and the benefits of Moore’s Law.

This has yielded industry-leading Net Promoter scores, based on the results of customer satisfaction surveys PSTG conducted.

Intellectual Property

As of July 31, 2015, PSTG had over 200 total issued patents and over 150 patent applications in the United States and foreign countries.

PSTG’s issued patents have expiration dates ranging from 2015 to 2034.

PSTG also license technology from third parties when PSTG believes it will facilitate its product offerings or business.

PSTG has adopted a policy under which PSTG will not assert patents acquired to date from third parties offensively, other than as part of a counterclaim.

Competition

PSTG’s main competitors fall into two categories:

large storage system vendors such as EMC, Hitachi Data Systems and NetApp that offer a broad range of storage systems targeting various use cases and end markets; and

large systems companies such as Dell, HP, Lenovo and IBM that have acquired or licensed specialist storage technology in recent years to complement their internally-developed storage offerings and have the technical and financial resources to bring competitive products to market.

In addition, PSTG competes against smaller specialized storage companies, including next-generation vendors of hybrid storage as well as vendors of hyper-converged products, defined as server compute and storage combined within a single chassis.

As PSTG’s market grows, it will attract new startups, more highly specialized vendors as well as larger vendors that may continue to acquire or bundle their products more effectively.

5% Shareholders Pre-IPO

John Colgrove 8.5%

Aneel Bhusri      16.8%  

Mike Speiser     18.7%  

Entities affiliated with Greylock 17.3%

Persons affiliated with Sutter Hill Ventures          27.4%

Entities affiliated with Redpoint Ventures     5.7%          

Dividends

No dividends are planned.

Use of Proceeds

PSTG expects to receive $395 million from its IPO and use it for the following:

primarily for general corporate purposes, including expansion of its product development and sales and marketing organizations.

PSTG may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies, solutions or businesses that complement its business, although PSTG has no commitments or agreements to enter into any such acquisitions or investments at this time.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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