The Offering -
Silver Spring Networks (SSNI) is pricing a new offering of its common stock under the proposed symbol SSNI. The offering is for 3.705 million shares and the company expects to raise just over $76 million. After the offering, the company will have over 44 million shares outstanding and a market cap of $754.1 million, assuming the stock prices at the midpoint of the $16 - $18 range. The lead underwriters of the deal are Goldman Sachs and Credit Suisse.
Silver Spring's Business -
The focus of Silver Spring's business is providing a networking platform and solutions to utility companies helping them change current power grid infrastructure into the smart grid. The company calls its main product its Smart Energy Platform, which is made up of both hardware and software services design to control and monitor energy consumption and give utilities real-time data on the health of the grid. Silver Spring sells its networking platform directly to utilities around the world. Some of its customers include - PG&E (PCG), Atlantic City Electric Company (POM), Commonwealth Edison Company (EXC) and Florida Power & Light Company (NEE), just to name a few.
Silver Spring's Competitors -
Like many technology companies trying to enter the public markets, Silver Spring faces fierce competition in its business. In addition to small companies and companies just entering the market, Silver Spring also competes with traditional meter manufacturers. Echelon Corporation (ELON), Toshiba Corporation (TOSBF.PK), Sensus Metering Systems and Trilliant Holdings, Inc. are some of the companies that are using communication technologies to connect the smart grid to the utility's back office. Large corporations such as Alcatel-Lucent (ALU), AT&T (T), Cisco Systems (CSCO), IBM (IBM) and General Electric Company (GE) have all announced plans to pursue smart grid business opportunities.
Similar IPOs To Silver Spring Networks -
So far this year there have not been very many IPOs in total and there haven't been any that do the same type of business that Silver Spring Networks is doing. There have been a couple of energy companies that completed offerings and have been performing above the IPO prices. Silver Spring has picked a very good time to go public, with the DOW hitting all time highs. This makes comparisons to past IPOs difficult to make and not very accurate. However, this year has been good to IPOs in general. Of the 25 issues that have priced in 2013, all but five are up from their issue price.
Silver Spring Network's Financials -
The financial health of Silver Spring Networks could be better. Granted, the company has managed to lower cost of revenue for 2012 over the year prior, but it still had a substantial net loss for the full year of $89.7 million. It has never been profitable and the company expects losses to continue for the foreseeable future. Also, because of the nature of its business, product sales are difficult to predict and sometimes require long testing cycles. This fact makes revenue erratic, hard to estimate and the company may miss analyst estimates frequently. The company does have revenue around $200 million annually and a substantial backlog of orders, so investors will have to decide if that's enough to support the $750 million dollar valuation.
How To Play The Silver Spring Networks IPO -
While the IPO market and the stock market in general have been on a tear so far this year, several things are concerning about Silver Spring Networks. The substantial losses to date and no estimates on when it will be profitable, if ever, are troubling. Another negative is the lack of visibility of revenues from quarter to quarter. While the business itself is promising and the company sells a product that customers seem to be satisfied with, I see the stock pricing at the midpoint of the range or lower. If the deal gets done, I don't see the stock moving much higher than the IPO price anytime soon. So I'm going to stay on the sidelines for this one.