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Ruckus Wireless (NYSE:RKUS) made its public debut on Friday, November 16th. The provider of carrier-class Wi-Fi solutions ended their first day with losses of 18.3% to $12.25 per share.

The Public Offering

Ruckus Wireless is a leading provider of carrier-class Wi-Fi solutions. The company provides its services to enterprises to solve network capacity and coverage challenges, related to the increased traffic on wireless networks. Ruckus' products include gateways, controllers and access points.

Ruckus sold 8.4 million shares for $15 a piece. Ruckus raised $105 million in gross proceeds in the offering process. Based on the offer price of $15.00, the company is valued at $1.1 billion.

The offering is quite a disappointment. The offer price was set at the high-end of the preliminary $13-$15 price range set by the firm and its bankers. Some 7.0 million shares were offered by the company, while selling shareholders offered another 1.4 million shares. Friday's losses send shares below the initial guided price range.

In total, 11% of Ruckus Wireless' shares outstanding were offered. At Friday's closing price of $12.25 per share, the firm is valued at $903 million.

The major banks that brought the company public were Goldman Sachs, Morgan Stanley, Deutsche Bank, Needham & Company and Oppenheimer, among others.

Valuation

Ruckus sells its products to over 18,700 end-customers worldwide, adding over 7,100 new customers so far in 2012. The company sells its products to enterprise customers through a network of more than 6,000 re-sellers and distributors.

The company reported annual revenues of $120.0 million, up 59.0% on the year before. Ruckus reported a net profit of $4.2 million, compared to a loss of $4.4 million the year before.

Revenues for the first nine months of 2012 came in at $152.5 million, up 93.0% on the year before. The company reported a net income of $29.8 million compared to a net profit of $1.0 million the year before. Net income attributable to shareholders came in at $7.4 million, with diluted earnings per share coming in at $0.24 per share. Net income was partially driven by a $17.6 million income tax benefit.

Ruckus will receive $105 million in gross proceeds from the offering. The company has no specific purpose for the proceeds of the offering, other than general corporate purposes.

Based on estimated net proceeds of $95 million, the firm operates with roughly $132 million in cash and equivalents. The company operates without the assumption of debt, after the conversion of preferred stock into common stock, for a net cash position of roughly $132 million.

Ruckus' operating assets are valued at approximately $771 million. This values the firm at roughly 3.7 times its full year revenues, estimated at $210 million for 2012. The company could net earn roughly $18 million for the year, excluding the tax benefit. This values the firm at roughly 42-43 times 2012s annual earnings.

Investment Thesis

As discussed above, the offering of Ruckus Wireless is quite a disappointment. Shares opened at their offer price of $15 per share on Friday and ended the day with steep losses of 18.3% at $12.25 per share. As such, shares are still trading some 12.5% below the midpoint of the initially guided price range.

The company intends to retain all available funds and any future earnings for the operation of the business. Ruckus does not anticipate to pay any cash dividends in the foreseeable future.

The public offering took place in a weak public offering market. The offering of Ruckus was the first public offering in over two weeks. Equity markets have been under pressure as a result of the "fiscal cliff" discussions and the increased tension in the Middle-East.

An investment in Ruckus Wireless is a bet on increased demand for wireless internet services. Many mobile users are using more intense forms of data traffic, thereby putting more strains on these internet networks.

Shares are fairly valued at 3.7 times annual revenues, after revenues almost doubled in the first nine months of this year. The earnings multiple of 42-43 times annual earnings is rather steep, but earnings growth has been impressive so far.

Ruckus competes with other technology giants including Cisco Systems (CSCO), Hewlett-Packard (HPQ) and Aruba Networks (ARUN).

Ruckus trades at a premium valuation compared to its competitors, however growth in both revenues and earnings has been impressive. The company reported losses for the full year of 2009 and 2010 and has become profitable in 2011.

Opportunistic investors could pick up some shares in the coming days or weeks, as shares are trading at a 18% discount compared to the offer level. Shares offer long term potential as long as Ruckus Wireless's solutions remain on the edge of the technological forefront.

I remain on the sidelines, awaiting the price action in the coming weeks before deciding on whether to initiate a long position.

Source: Ruckus Wireless - Disappointing Public Offering Gives Opportunistic Investors A Buying Opportunity