Mobile Iron - Sudden But Dramatic Growth Slowdown Raises Red Flags In This Recent Offering

| About: MobileIron, Inc. (MOBL)


Mobile Iron provides solutions for the ¨bring-your-own-device¨ trend.

The company posts impressive gross margins and impressive historical growth rates.

Yet recently, operating losses are increasing again as growth has seen a sudden halt.

Mobile Iron (MOBL) is the inventor of a mobile IT platform which enterprises can use to manage applications, content and devices for their employees.

The company's solutions appear to be in demand given the market developments, yet growth has suddenly stalled in a dramatic fashion, prompting me to pass making an investment in the firm.

The Public Offering

Mobile Iron's mobile solutions provide employees of organizations with the choice of their device, privacy and a great user experience. Enterprise customers who embrace mobility can transform their business by giving employees access to business applications and devices while providing a great user experience.

Mobile Iron has been founded back in 2007, spending the first two year's of its life as a corporation developing the platform which was released in 2009. Continued developments, new features and expansion of the channel partners has occurred ever since. This has attracted over 6,000 customers to date.

Mobile Iron sold 11.1 million shares for $9 apiece, thereby raising $100 million in gross proceeds. As far as the press release reveals, all shares were offered by the company, with no shares offered by selling shareholders.

The company priced the offering at the midpoint of the preliminary offering range of $8 to $10 per share set by the firm and its bankers. Shares of the company jumped on its opening day to $11.02 per share to see shares fall back to $10.30 per share by Friday. At these levels, the company is valued at roughly $769 million.

The major banks that brought the company public were Morgan Stanley, Goldman Sachs, Deutsche Bank, Barclays, Raymond James, Nomura and Stifel, among others.


Mobile Iron's solutions are based on the huge disruptive transition away from mainframe PCs towards mobile solutions. Corporate IT departments are challenged to provide the benefits of mobility while meeting enterprise requirements.

In particular, companies are trying to provide the same ease of access to applications which consumers use privately in an easy manner. On the other hand, consumers want their privacy guarded when accessing private information at work.

Mobile Iron's solutions promote productivity, the separation of personal and corporate data, and gives IT departments the ability to set security and compliance policies across the network. All of this enables the ¨Bring your own device¨ and mixed device environment.

For the year of 2013, Mobile Iron posted revenues of $105.6 million which is up 158.2% on the year before. The company posted a net loss of $32.5 million which was narrower than the $46.5 million loss reported last year.

Very disappointing, for the quarter ending on March 31, Mobile Iron posted revenues of $28.2 million which is up just 9.3% on the year before. This is a huge slowdown of course. Even more disappointing, net losses increased from $3.1 million last year to $14.0 million.

Before the offering took place, Mobile Iron held roughly $64.4 million in cash while debt of $3.3 million was limited, resulting in a net cash position of $61 million. Adding in the $100 million in gross proceeds and Mobile Iron will operate with roughly $150 million in net cash.

This values operating assets at around $620 million which values the company at 5.9 times annual revenues reported for 2013.

Investment Thesis

As noted above, the public offering of Mobile Iron has been a modest success. Shares were offered at the midpoint of the preliminary offering range. Shares jumped up 22.2% on their opening day after which shares fell on Friday, limiting gains to 14.4%.

The valuation in terms of revenues is not even that steep at nearly 6 times revenues for 2013, despite the company reporting sky-high gross margins of 84.4% for the year of 2013. The problem are operating expenses, and sales and marketing expenses in particular. The company spend an incredible $0.65 in marketing and sales-related expenses in 2013 on every dollar of reported revenues!

High costs are an issue, but investors are tolerant to losses in this environment as long as these expenses fuel topline revenue growth. Full year revenue growth of more than 158% in 2013 slowed down dramatically to just 9.3% in the first quarter.

This could already be anticipated to some extent with billings in 2013 coming in at just $100.8 million, which resulted in a book-to-bill ratio of just 0.95. This recovered to some extent in the first quarter when bookings of $30.3 million resulted in a book-to-bill ratio of 1.07, adding to the backlog again.

Still this number is not impressive and is my main reason to avoid the shares. The growth slowdown is just too severe, making me wondering what is behind the weakness. Of course the usual risks for public offerings like operational losses, changing technological developments, competition and the loss of key staff applies to Mobile Iron as well.

Once again, I don't mind losses and the valuation on revenue terms is warranted given the high gross margins. Yet the growth is the real issue as I am not sure what can explain this sudden but very dramatic slowdown in growth. I will keep the company on my radar, keeping an eye on growth in the second quarter.

For now shares don't offer any appeal in my opinion.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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