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Mavenir Systems (NYSE:MVNR) made its public debut on Thursday, November 7. Shares of the provider of software-based telecommunication networking solutions ended their first day with losses of 4.5%.

After the very poor offering, shares trade at very reasonable revenue multiples, especially given the high gross margins of the firm. If Mavenir can demonstrate positive operating leverage going forwards, investors might possibly have a chance to buy some shares on the cheap.

The Public Offering

Mavenir provides software-based telecommunication networking solutions which enable mobile service providers to deliver voice, video and other rich communications to their subscribers on a global basis.

Its solutions work for 2G, 3G as well as 4G Long Term Evolution networks. By enabling mobile service providers to offer its services, Mavenir creates more revenues for those providers, while improving customer satisfaction.

Mavenir sold 5.45 million shares for $10 apiece, thereby raising $54.5 million in gross proceeds. Some 5.32 million shares were being sold by the company, which thereby raised little over $53 million with the remainder of shares being offered by selling shareholders.

Initially, bankers and the firm set an initial price range of $15-$17 per share at which they planned to sell a combined 4.8 million shares. Shares were eventually sold far below the low end of the adjusted initial public price range.

Some 24% of the total shares were offered in the public offering. At Friday's closing price of $9.25 per share, the firm is valued at $208 million.

The major banks that brought the company public were Morgan Stanley (NYSE:MS), Bank of America/Merrill Lynch (NYSE:BAC), Deutsche Bank and Needham & Company.

Valuation

Through the popularity of smartphones and tablets, consumers have moved their focus from traditional voice services to video and other "rich" communication services.

These increased demands on existing networks drive an exponential growth in network demands. This requires mobile service providers to upgrade their networks in order to tackle these traffic challenges. Research firm Gartner, estimates in Mavenir's S1-Filing, that spending on 4G LTE infrastructure will increase from $5.9 billion in 2012 to an expected $33.9 billion by 2017.

The interoperable solutions from Mavenir allow service providers to leverage investments across all networks, providing solutions to some 120 mobile networks across the globe. The firm has key customers including AT&T (NYSE:T), T-Mobile USA, Vodafone, Deutsche Telekom and MetroPCS which is now part of T-Mobile.

For the year of 2012, Mavenir generated annual revenues $73.8 million, up 49.2% on the year before. Net losses narrowed from $21.8 million to $15.6 million.

Revenues for the first half of this year came in at $48.2 million, up 20.6% on the year before. Losses increased from $5.6 million to $7.9 million.

The company operates with $20.5 million in cash and equivalents. Total debt stands at $38.2 million, resulting in a net debt position of $18 million.

Factoring in gross proceeds of $53 million from the public offering, which will be used for general corporate purposes and result in the fact that Mavenir for now will operate with a net cash position, of around $20-$25 million.

With the equity in the business being valued around $208 million, Mavenir's operating assets are valued around $185 million. This values operating assets of the firm at 2.5 times annual revenues.

Investment Thesis

As noted above, the offering of Mavenir has been a true disappointment. The company priced the offering at $10 per share, some 37.5% below the midpoint of the preliminary offering range. Ever since, shares have seen more pressure, currently trading some 42.2% below the midpoint of the preliminary offering range.

Mavenir's success for now is based on its mOne Convergence Platform which combined with customer concentration results in lumpy growth amidst tough competition from the likes of Alcatel Lucent, Ericsson and Nokia Siemens, among others. Third quarter revenues are seen between $24.9 and $25.5 million, which is down from $25.8 million in revenues reported in the second quarter. Revenue growth is up 46-49% on the year before.

Other than these risks, there is a risk of a growth slowdown, continues losses and technological changes. The rapid growth also puts a strain on the organization. After being founded in 2005, Mavenir currently employs some 670 workers.

The market has been really concerned about some of the issues stipulated above. As such, might the big discount might actually offer an appealing entry point for some investors?

Trading at 2.5 times last year's revenues and less than 2.0 times expected revenues for 2013, assuming annual revenues of $100 million, Mavenir looks reasonably attractive given the very high gross margins. If Mavenir can generate some positive sales leverage on the back of future revenue growth, investors might have an opportunity to buy some shares on the cheap at current levels.

Source: Mavenir Systems - Very Disappointing Offering Creates An Opportunity For Investors