Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)

If you flip through the pages of the IPO prospectus for Gigamon (NYSE:GIMO), you can see the immediate bullish case for shares. The company highlights its market leading services that are used by top firms in the United States and around the world. Here is the list:

  • 8 of top 10 United States banks and financial services

  • 7 of top 10 United States retailers

  • 6 of top 10 United States managed healthcare

  • 4 of top 10 Global exchanges

  • 6 of top 10 United States telecoms

  • 6 of top 10 United States cable providers

  • 243 of Fortune 1000 companies

  • 60 of Fortune 100 companies

Gigamon is expected to price shares Tuesday night for an initial price offering on Wednesday. Shares will trade on the New York Stock Exchange under the symbol GIMO. Gigamon will sell 4.5 million shares, while an existing shareholder will sell an additional 2.25 million shares. The 6.75 million share IPO is expected to price between $18.00 and $20.00. After the IPO, there is expected to be 29.46 million shares outstanding. Executives and 5% shareholders will own 61.9% of the company after the offering.

Gigamon uses its visibility architecture to help businesses with traffic. Gigamon has "developed an innovative solution that delivers pervasive and dynamic intelligent visibility of traffic across networks." The company gives companies an advanced level of visibility, modification, and control of network traffic. Gigamon also has a patented flow mapping technology. Since its inception in 2004, Gigamon has helped over 1000 customers.

In fiscal 2012, the company recorded revenue of $96.7 million. Over the most recent three month period, Gigamon reported $25.8 million in revenue vs. $16.7 million the prior year. Net income was $7.5 million in fiscal 2012. The most recent three month period, Gigamon reported a net loss of $1.2 million.

Here is a closer look at Gigamon's revenues:

2010

2011

2012

3 Month 2012

3 Month 2013

Product Rev

$35.58 mil

$51.31 mil

$69.52 mil

$10.89 mil

$17.52 mil

Services Rev

$10.91 mil

$16.80 mil

$27.20 mil

$5.81 mil

$8.30 mil

Total Rev

$46.49 mil

$68.11 mil

$96.72 mil

$16.70 mil

$25.81 mil

Net Income

$3.45 mil

$10.11 mil

$3.61 mil

-$0.86 mil

-$1.22 mil

Net Income Per Share

$0.19

$0.58

$0.21

-$0.05

-$0.07

Gigamon has been cash flow positive for each of the last seven years. The company has increased its product and services revenue over that time to achieve this. Gigamon offers a one year contract, which provides maintenance and support, bundled with each initial contract. After that, services have to be purchased as an upgrade. In the last three months, product revenue increased 61%, services revenue increased 43%, to showcase a total increase of 55% for revenue.

The forces identified by Gigamon that power the company:

  • Virtualization and cloud computing

  • Mobility

  • Big data

  • Software-defined networking

In the prospectus, Gigamon lists two key reasons to choose the company over competitors. Gigamon cites the need for a comprehensive visibility solution and limitations of traditional approaches as the two reasons. The company also lists several key benefits for choosing Gigamon, listed below:

  • Providing pervasive visibility and control
  • Enabling rapid response to dynamic change
  • Delivering scalable, high-throughput capacity. Improving network efficiency and economy
  • Enhancing network reliability

  • Ease of deployment and use

Gigamon is expected to use proceeds from the offering to pay off its 2009 performance unit plan. The company will also use the proceeds for acquisitions and working capital. Going forward, Gigamon has the following as its key growth strategy:

  • Continuous innovation

  • Increase awareness of our value proposition

  • Expand our relationships with existing end-user customers

  • Invest in our global distribution network

Another company to watch when Gigamon goes public is Jabil Circuit (NYSE:JBL). Gigamon counts on Jabil Circuit for the manufacturing of almost all of its products. While this provides a big risk for Gigamon, it will benefit Jabil Circuit. Shares of Jabil Circuit could see a nice boost this week with a strong offering.

With the low volume of shares offered, this is one of those IPOs that could rise substantially on its first day on the public exchange. I expect demand to be high for this company, as its growth has been spectacular and it remains an acquisition target. I will be placing a limit order for this stock during its debut, but not sure if I can get in at a decent price. Consider getting in on this anticipated technology IPO.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Author plans on placing a limit order for Gigamon at the time of its IPO

Source: Gigamon IPO: Providing Services For 60 Of The Top 100 U.S. Companies