Aerohive Networks IPO Could Be Tangled

| About: Aerohive Networks, (HIVE)

Summary

HIVE is a provider of a cloud-based mobile networking platform, designed to support a mobile network edge.

HIVE plans to raise $75.0 million in its upcoming IPO, offering 7.5 million shares at an expected price range of $9-$11 per share.

We are neutral to negative on this IPO, given the company’s troubling financial losses and the recent tech skid, which could lead possible investors to hesitate with this offering.

Aerohive Networks Inc. (NYSE:HIVE), provider of a cloud-based mobile networking platform, designed to support a mobile network edge, plans to raise $75.0 million in its upcoming IPO.

The Sunnyvale, California-based firm will offer 7.5 million shares at an expected price range of $9-$11 per share. If the IPO can find the midpoint of that range at $10 per share, HIVE will command a market value of $479 million.

HIVE filed on February 13, 2014.

Lead Underwriters: BofA Merrill Lynch, Goldman Sachs & Co.

Underwriters: JMP Securities LLC, Piper Jaffray & Co, Stephens Inc, William Blair and Co LLC.

Summary

HIVE provides a cloud-managed mobile networking platform that allows enterprises to utilize a mobile-centric network edge (the point at which devices access an enterprise's network).

Wi-Fi based mobile devices, from laptops to smartphones, are increasingly being put to use to perform critical work functions; the resulting increase in the complexity of the network edge means that management of the network edge has become commensurately more difficult to manage. HIVE offers software and hardware products including intelligent access points, routers, gateways and switches managed by the firm's Cloud Service Platform, allowing end-customers a unified and contextual view of the network edge. As of December 31, 2014, HIVE had some 13,100 end-customers worldwide.

Valuation

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

Revenue: $107,135,000.00

Net Income: ($33,227,000.00)

Total Assets: $69,857,000.00

Total Liabilities: $73,202,000.00

Stockholders' Equity: ($3,345,000.00)

HIVE has seen rapid growth in its revenues over the past several years; the firm posted total revenues of $34.0 million in 2011, $71.2 million in 2012 and $107.1 million in 2013. However, HIVE also saw huge increased net losses over the same periods, posting net losses of $14.8 million in 2011, $24.7 million in 2012, and $33.2 million in 2013.

Business

HIVE's products face competition from numerous sources, including general networking vendors, Wi-Fi vendors, and enterprise mobility companies, some of which have access to far greater financial and technical resources than HIVE. These competitors include Cisco, Juniper Networks, Hewlett-Packard, Aruba Networks, and Ruckus Wireless. HIVE foresees increasing competition in the future as other companies begin to offer products to address similar networking needs.

Management

David K. Flynn has served as HIVE's CEO since 2007, as President since 2007, and as Chair of the Board since July 2013. Mr. Flynn previously worked with Juniper Networks Inc. after Juniper acquired NetScreen Technologies Inc., where he had served as Vice President of Marketing. Mr. Flynn received a B.A. in Economics from Williams College and an M.B.A. from the Stanford Graduate School of Business.

Conclusion

We are neutral to negative on this IPO.

Though there is an undeniable need for many enterprises to make the shift from the management of wired network edges to mobile-centric network edges - a need reflected in HIVE's rapidly increasing income - the firm has yet to prove that it can convert demand into profit, and has been unable to avoid huge ongoing losses.

Given the firm's expectation of increasing future competition, it may have difficulty in maintaining its high revenue growth and converting that growth into profits.

Though tech IPOs have performed well this year, the heavily-reported recent tech skid could lead investors to be leery of this offering.

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.