IPO Previeiw: Ruckus Wireless

| About: Ruckus Wireless (RKUS)

Based in Sunnyvale, CA, Ruckus Wireless (NYSE:RKUS) scheduled a $118 million IPO with a market capitalization of $1 billion at a price range midpoint of $14, for Friday, November 16, 2012.

Three other IPOs were also scheduled for this week. The full IPO calendar is available here.

S-1 filed November 5, 2012

Manager, Joint Managers: Goldman, Sachs/ Morgan Stanley/Deutsche Bank Securities.

Co Managers: Needham; Oppenheimer; ThinkEquity; William Blair; Craig-Hallum Capital Group.


RKUS provides Wi-Fi solutions to service providers and enterprises, worldwide.

There are several barriers that may prevent service providers or their subscribers from adopting Wi-Fi technology to address the capacity gap in wireless networks. See MARKET CAVEATS, subscriber barriers below.

RKUS includes an $18 million tax credit to earnings for the nine months ended September 2012, which needs to be backed out for financial analysis.

For the nine months ended September 2012 RKUS's revenue increased 92% to $152 million from $79 million from the same 2011 period. Pre-tax income increased to 900% to $12 million from $1.2 million not counting the tax credit.

Valuation Ratios

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Assumes 21% tax rate, same as Cisco

Glossary of IPO Analysis terms


RKUS looks like it is ok to take on the IPO based on revenue and net profit increases. However, the price at an adjusted P/E of 81 and seven times book value are both on the high side, so any slip in the sales and earnings progression could be costly for shareholders.


Ruckus is a leading provider of carrier-class Wi-Fi solutions. RKUS's solutions, called Smart Wi-Fi, are used by service providers and enterprises to solve network capacity and coverage challenges associated with the rapidly increasing traffic and number of users on wireless networks.


RKUS's products have been sold to over 18,700 end-customers worldwide. Service provider end-customers include mobile operators, cable companies, wholesale operators and fixed-line carriers. Enterprise end-customers span a wide range of industries, including hospitality, education, healthcare, warehousing and logistics, corporate enterprise, retail, state and local government and public venues, such as stadiums, convention centers, airports and major outdoor public areas.


RKUS develops and provides Wi-Fi products for service providers and enterprises. The success of RKUS's business depends on the continued growth and reliance on Wi-Fi in these markets. The recent growth of the market for Wi-Fi networks is being driven by the increased use of Wi-Fi-enabled mobile devices and the use of Wi-Fi as a preferred connectivity option to support video, voice and other higher-bandwidth uses.

Subscriber barriers

A number of barriers may prevent service providers or their subscribers from adopting Wi-Fi technology to address the capacity gap in wireless networks.

For example, Wi-Fi operates over an unlicensed radio spectrum, and if the Wi-Fi spectrum becomes crowded, Wi-Fi solutions will be a less attractive option for service providers.

In addition, in order for Wi-Fi solutions to adequately address the potential future capacity gap between cellular capacity and demand, mobile devices should automatically switch from a cellular data network to the service provider's Wi-Fi network, when available and appropriate.

Generally, mobile devices do not switch to unauthenticated Wi-Fi networks without input from the device user, and often require the user to log in when a new Wi-Fi network is accessed, which may tend to limit a subscriber's use of Wi-Fi. These and other factors could limit or slow the adoption of Wi-Fi technologies by service providers as a means to address this potential future capacity gap.


RKUS launched its SmartCell gateway in the first quarter of 2012 to enable service providers to support and manage Smart Wi-Fi access points and to serve as a platform for integration of Wi-Fi and other services into the service provider network infrastructure.


RKUS targets both service providers and enterprises that require carrier-class Wi-Fi solutions through a global force of sales personnel and systems engineers. They work with more than 6,000 value-added resellers and distributors, collectively referred to as channel partners, to reach and service end-customers.

Service providers

Service providers typically require long sales cycles, which generally range between one and three years, but can be longer. The sale to a large service provider usually begins with an evaluation, followed by one or more network trials, followed by vendor selection and finally deployment and testing.

A large service provider will frequently issue a request for proposals to shortlist competitive suppliers prior to the network trials.

Completion of several of these steps is substantially outside of RKUS's control, which causes revenue patterns from large service providers to vary widely from period to period. After initial deployment, subsequent purchases of products typically have a more compressed sales cycle.


RKUS is a global business and, since 2009, more than 55% of RKUS's annual revenue has been generated outside of the United States.

Due primarily to the size of large service provider orders, the amount of revenue from a region may vary significantly from period to period. For example, in 2011, 37% of revenue was generated from the Americas region, 35% was generated from the Asia Pacific, or APAC, region and 28% was generated from the Europe, Middle East and Africa, or EMEA, region.

However, during the first nine months of 2012, 45% of revenue was generated from the Americas, 33% was generated from the APAC region, and 22% was generated from the EMEA region.

Over 90% of revenue is from product sales.


RKUS pays taxes in the United States and foreign countries. To adjust RKUS's pre-tax income, IPOdesktop assumed RKUS pays the same tax rate as Cisco, which was 21% for the 12 months ended July 28, 2012.


Competitors include Cisco Systems (NYSE:CSC), Ericsson (NASDAQ:ERIC), Hewlett-Packard (NYSE:HPQ), Motorola (NYSE:MSI) and Aruba Networks (NASDAQ:ARUN).


RKUS currently owns 60 patents and has 82 patent applications pending for its technology.


As of September 30, 2012, RKUS had 606 employees.


RKUS expects to net $88 million from its IPO. Proceeds are allocated to working capital and general corporate purposes.

Seven million shares will be offered by RKUS. 1.4 million shares will be offered by selling shareholders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.