Seeking Alpha
IPOdesktop, IPOpremium (436 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in Detroit, MI, Covisint (COVS) scheduled a $64 million IPO with a market capitalization of $264 million at a price range mid-point of $10 for Thursday September 26, 2013.

Twelve IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium

S-1 filed September 11, 2013,.

Manager, Joint Managers: Credit Suisse; Pacific Crest Securities; Evercore

Summary

COVS provides a leading cloud engagement platform for enabling organizations to securely connect, engage and collaborate with large, distributed communities of customers, business partners and suppliers. two-thirds of revenues are from subscriptions.

Revenue was up 17% to $24 for the June '13 quarter, versus the June '12 quarter. 59% of revenue is from the auto industry. 35% of revenue is from GM. COVS is trying to expand its business into the healthcare segment.

COVS was marginally profitable for the June '13 quarter after showing a steady stream of losses.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Covisint (COVS)

$364

3.8

-19.4

3.7

7.5

18%


Retained deficit of -$8 million.

Conclusion

Buy COVS on the IPO because COVS's price-to-sales is 3.8. Cloud-based subscription companies sell at higher multiples, but one-third of revenues are attributable to GM.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

COVX provides a leading cloud engagement platform for enabling organizations to securely connect, engage and collaborate with large, distributed communities of customers, business partners and suppliers.

Revenue was up 17% to $24 for the June '13 quarter, versus the June '12 quarter. 59% of revenue is from the auto industry, and 35% of revenue is from GM.

94% of revenue comes from 150 core customers.

Compuware (CPWR), $2.4 billion market cap, is the parent and owns 100% of COVS pre-IPO.

The COVS platform is pre-built with vertical-specific data types, identity frameworks and workflows that minimize the need for customization, speed time to market and generate a comparable competitive advantage.

Intellectual Property

COVS holds a patent in the U.S. on its core technology, in the context of an industry-wide business-to-business exchange. This patent will expire in 2028.

Competition

The overall market for enterprise cloud-based platforms and solutions is emerging. COVS's primary competition currently comes from internal IT groups and established systems integrators. COVS believes that competition fits into the following categories:

Systems integrators, such as IBM, Hewlett-Packard and Dell;

Cloud-based platform vendors, such as Salesforce.com and Microsoft Azure;

Business-to-business integration and data exchange vendors, such as GXS and Sterling Commerce, a division of IBM; and

Internally developed solutions.

5% stockholders pre-IPO

Compuware, $2.4 billion market cap: 100%

Use of proceeds

COVS expects to net $58.5 million in IPO proceeds, which are allocated toward working capital and general corporate purposes.

Disclaimer: This COVS IPO report is based on a reading and analysis of COVS's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Covisint