A10 Networks Goes Public As Losses Narrow

| About: A10 Networks, (ATEN)

According to a Gartner report, Worldwide IT spending is projected to grow 3.1% over the year to $3.8 trillion in 2014. That's a significant improvement over the 0.4% growth reported in 2013. Within the market, enterprise software spending is projected to be the fastest growth segment with a projected improvement of 6.8% in 2014 to $320 billion.

A10 Networks's Offerings

Within enterprise software, bandwidth management and network identity software solutions are also seeing rapid growth. San Jose-based A10 Networks (NYSE:ATEN) is establishing its presence in this particular segment. A10 was founded by Lee Chen to provide organizations with solutions for accelerating web application delivery, bandwidth management and network identity issues.

A10's solutions enable corporate, service providers, Web companies and government organizations to accelerate, secure and optimize the performance of their data center applications and networks. The company currently offers three software-based advanced application networking solutions - the Application Delivery Controllers (ADCs) that optimize data center performance, Carrier Grade Network Address Translation (CGN) that provide address and protocol translation services for service provider networks, and a Distributed Denial of Service Threat Protection System (NYSEARCA:TPS) for network-wide security protection. These solutions are delivered through the company's hardware appliances as well as over the cloud on virtual appliances.

Their products are built on the Advanced Core Operating System (ACOS) which is a platform of networking technologies that help deliver enhanced performance, security and flexibility needed to resolve security challenges faced by cloud and mobile computing technologies. The platform is optimized for 64-bit processors and uses a shared memory architecture that enables all cores with simultaneous access to common memory. This proprietary technology enables the company's products to utilize multi-core CPUs efficiently to deliver scaling capabilities and delivering products that can process two to five times more web transactions than other similar products. In an earlier interview with me, Mr. Chen had explained how its "secret sauce" is superior than others and has enabled the company to deliver efficient hardware for very fast application layer processing and deep packet scanning. When most other vendors go from layer 4 to layer 7, the performance drops 50% whereas in their case, it drops just 10-20%.

A10's Financials

A10's products have been deployed in more than 2,900 organizations across 65 countries. The company has enough geographic diversity and earns 52% of revenues from outside the US. Japan is a big market as the company is the leader in the country and earns 28% of revenues from there. 24% of revenues come from the rest of the world.

A10 has seen strong revenue growth over the past few years. Revenues have increased at 37% annually from $55.3 million in 2010 to $141.7 million in 2013. Over the same period, A10 saw losses increase. From earnings of $5.2 million in 2010, the company reported a net loss of $90.2 million in 2012 and $27.1 million in 2013. The losses have been attributed to legal expenses.

Revenues for the first quarter ended March 31, 2014, have improved from $29.6 million last year to $45.7 million. Product revenues grew from $23.2 million last year to $36.4 million while service revenues improved from $6.3 million to $9.3 million. Non-GAAP losses have reduced 50% to $0.06 per share over the year.

A10 is operating in a high growth market as solutions help cater to the rising demands of mobility, Big Data, cloud-based computing and security - a market opportunity pegged to be worth $12 billion. Last quarter, A10 went public on the NYSE under the ticker ATEN and raised $187.50 million at a share price of $15.00 each at a valuation of $940 million. Prior to that, the company was venture funded with $118 million raised from investors including Summit Partners, Mitsui & Co, Global Investment, Enspire Capital, Harbinger Ventures, Triton Ventures and H&Q Asia Pacific.

Their stock is currently trading at $12.41 with a market capitalization of $732.56 million. It touched a high of $16.50 soon after listing.