Watch Out For The Barracuda Networks IPO

| About: Barracuda Networks, (CUDA)

Barracuda Networks (NYSE:CUDA), a Campbell, California-based provider of security and storage solutions, plans to raise $503.8 million in its upcoming IPO on Wednesday, November6th. CUDA will offer 4,140,000 shares at an expected price range of $18-$21 per share. If the IPO can find the midpoint of that range at $19.50 per share, CUDA will command a market value of $1.0 billion. The CUDA IPO is expected on Wednesday, November 6.

CUDA filed on October 1, 2013.

Lead Underwriters: BofA Merrill Lynch, JP Morgan Securities LLC, Morgan Stanley & Co LLC
Underwriters: JMP Securities LLC, Pacific Crest Securities LLC, William Blair and Co LLC

Barracuda designs and markets cloud-connected security and storage solutions to address security threats, network performance and data storage and protection. The firm's products aim to simplify IT operations to provide greater returns on technology investments, and have been sold to over 150,000 customers in over 100 countries.

CUDA's solutions are connected to the firm's cloud services to allow for continuous software updates and offsite redundancy. The firm offers its solutions on a subscription basis, and delivers them either as cloud-connected and virtual appliances or as cloud-only solutions. CUDA's target market is resource-constrained IT professionals seeking to keep up with current trends in IT; as such, CUDA's customers are spread across enterprises ranging from mid-market businesses to government and educational institutions.

CUDA offers the following figures in its S-1 balance sheet for the six months ending August 31, 2013:
Revenue: $114,067,000
Net Loss: ($4,941,000)
Total Assets: $236,168,000
Total Liabilities: $326,285,000
Stockholders' Equity: ($254,824,000)

CUDA has seen fairly significant revenue growth in the past several years, with total revenues of $142.1 million, $160.9 million, and $198.9 million for fiscal 2011, 2012 and 2013, respectively. However, the firm has lost ground on profitability over the same period; net income (loss) was $3.0 million, $0.6 million, $(7.4) million and $(4.6) million for fiscal 2011, 2012, 2013, and the six months ended August 31, 2013, respectfully.

The company faces well capitalized competition from F5 Networks (NASDAQ:FFIV), EMC Corp. (EMC), Cisco Systems (NASDAQ:CSCO) and Dell Inc. (NASDAQ:DELL).


Executive overcompensation should be a concern for potential CUDA investors as discussed below. President and CEO William D. Jenkins, Jr. has been with the firm since late 2012. He previously served in various roles, including president of the Backup Recovery Systems division, at EMC Corporation. Mr. Jenkins holds a B.S. in general engineering from the University of Illinois and an M.B.A. from Harvard Business School.

This company is in a burgeoning market for data solutions, IPO investors in IPOs are loving fast growing tech companies and the company has huge gross margins. We recommend the CUDA IPO in the $18 to $21 price range.

However, the firm's accelerating losses at a time of revenue growth makes us uncomfortable, as does the ridiculous compensation offered to CUDA's executives; in fiscal 2013, CEO William D. Jenkins, Jr. received a total compensation of $18,889,514, while CFO David Faugno received a total compensation of $5,483,203 despite losing it's private institutional shareholders bundles of money.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CUDA over 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.