Seeking Alpha
, Google+ (263 clicks)
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)  

Summary

  • A10 Networks, a provider of application networking technologies, designed to improve the performance of data centers, plans to raise $175.0 million in its upcoming IPO.
  • A10 Networks will offer 12.5 million shares at an expected price range of $13-$15 per share.
  • We rate this IPO a buy, given the company's strong leadership and a likely return to profitability in the near future.

A10 Networks Inc (NYSE:ATEN), a provider of application networking technologies, designed to improve the performance of data centers, plans to raise $175.0 million in its upcoming IPO on Friday.

The San Jose, California-based firm will offer 12.5 million shares at an expected price range of $13-$15 per share. If the IPO can price at the midpoint of that range at $14 per share, ATEN will command a market value of $925 million.

ATEN filed on February 18, 2014.
Lead Underwriters: BofA Merrill Lynch, JP Morgan Securities LLC, Morgan Stanley & Co LLC
Underwriters: Oppenheimer and Co Inc, Pacific Crest Securities LLC, RBC Capital Markets LLC

Summary
ATEN provides advanced application networking products, built on the firm's Advanced Core Operating System platform, to enable a variety of organizations to improve data center application and network performance.

The firm offers a trio of software-based application networking solutions: Applications Delivery Controllers (ADC) for the optimization of data center performance; Carrier Grade Network Address Translation (CGN) for address and protocol translation services for service provider networks; and a Distributed Denial of Service Threat Protection System (TPS) for network-wide security. All three solutions are available as hardware and virtual appliances. The firm sells its products globally, through its high-touch sales force, which engages through direct and indirect distribution channels with end-customers.

Valuation
ATEN offers the following figures in its S-1 balance sheet for the year ended December 31, 2013:

Revenue: $141,738,000.00
Net Loss: ($27,096,000.00)
Total Assets: $93,794,000.00
Total Liabilities: $102,499,000.00
Stockholders' Equity: ($134,880,000.00)

ATEN has seen rapidly growing revenues over the past several years. For the years ended December 21, 2010, 2011, 2012, and 2013, the firm posted total revenues of $55.3 million, $91.3 million, $120.1 million and $141.7 million, respectively. Over the same periods, the firm posted net incomes (losses) of $5.2 million, $7.3 million, ($90.2 million), and ($27.1 million). It should be noted that the massive losses posted in 2012 and 2013 were in large part the result of a large settlement resulting from litigation.

Business
As of December 31, 2013, ATEN had sold products to over 2900 customers across 65 countries. Among the firm's more impressive clients are three of the top four US wireless carriers and seven of the top ten US cable providers. The firm has also sold products to the top three wireless carriers in Japan.

ATEN faces competition within its three major solution categories. Competitors in the traditional ADC market include F5 Networks Inc (NASDAQ:FFIV), Cisco Systems Inc (NASDAQ:CSCO), Brocade Communications Systems Inc (NASDAQ:BRCD), and Citrix Systems Inc (NASDAQ:CTXS).

Competitors in the CGN market include Alcatel-Lucent (NYSE:ALU) and Juniper Networks Inc (NYSE:JNPR). ATEN's TPS solution competes against extant DDoS mitigation products such as those offered by Radware Ltd (NASDAQ:RDWR) and subsidiaries of Danaher Corporation (NYSE:DHR).

Management
President and CEO Lee Chen has served in his current positions since 2004. He previously served as Vice President of Software Engineering and Quality Assurance at Foundry Networks Inc and held management and senior technical positions at OTS, Apple Computer, Convergent Technologies Inc, and InSync Group. He also co-founded Centillion Networks, Inc. Mr. Chen holds an M.S.E.E. from San Jose State University and a B.S. in Electrophysics from National Chiao-Tung University in Taiwan.

Conclusion
We rate this IPO a buy in the proposed range of $13 to $15.

ATEN's recent rapid revenue growth has come with fairly stable income/loss figures, discounting the litigation costs that generated large losses the past two years.

Though the firm does have significant competitors, ATEN's impressive customer base and solid leadership team, along with its diversified product offerings, lead us to believe that the firm should be able to continue its impressive growth and push towards a return to profitability.

Source: A10 Networks IPO Should Grab Investor Attention