A First Look at IPass

| About: iPass Inc. (IPAS)


We recently added iPass (NASDAQ:IPAS) to our mobile ecosystem and decided to take a quick initial look at the company. This is a very small company but the financials and valuation are attractive: Market Capitalization = $88m, Cash = $30m, Revenues = $156m (but not growing), and recent near-break even operations.

iPass provides WiFi access and management services to enterprise clients. This is an area of expanding demand and iPass has a large number of partnerships and provides their services to carriers who resell them under a "white label" arrangement. Carriers are key distribution partners and can expand in time to create a path to the consumer. Telstra, Colt, and Deutsche Telecom are all partners. Deployment time seems long and takes multiple quarters, which tends to dampen near-term growth in the face of these partnership deals. These companies had relationships with the older iPass solutions and have been "radically refreshed" with the new open mobile offering.

Management is telling investors that 2011 is a year that they can rebuild into a growth company on the strength of their "open mobile" enterprise platform. The company will lose money in 2011, which will require investors to be patient. Ultimately, they believe they can use their platform to address the larger mass market opportunity for mobile access and applications outside of the enterprise.

Without spending lots of time on the subject, the company has had a checkered past that included some shareholder activism back in 2006. New senior management came into the company in 2008 and 2009, which explains some part of their shifting strategy and revenue declines in the last two years.


So what does iPass really offer? From an enterprise perspective, it’s relatively simple. If you work for a large company and need data access on the go, there are often instances where additional options are needed to connect – places like airplanes, airports, hotels, and convention centers to name a few. Instead of a corporate user having to pay a per-access charge, they set up accounts for their employees who can then access these WiFi networks by signing in. iPass provides tools for enterprise customers to manage employee accounts, usage and deliver support.

In short, iPass provides a "bridge" technology solution for enterprise mobility that improves network access, adds flexibility and does it at a low enough cost that it might even save money in situations where wireless broadband coverage is limited. As employees typically carry two to three IP-addressable devices (phone, laptop, tablet), the need for additional wireless access expands.

Valuation & Conclusion

Peer analysis of this space yields a very mixed bag of valuation ranges. For example, companies like Motricity (MOTR), Cogent Communications (NASDAQ:CCOI), and even EarthLink (NASDAQ:ELNK) trade at some multiple of sales. But companies like RealNetworks (NASDAQ:RNWK), Openwave (OPWV), and iPass trade at well under 1x sales.

The $30m in cash (50c / share) gives the company plenty of security to plan for the next few years, despite anticipating adjusted EBITDA losses of $5m for 2011. Looking at Intrinsic Value, the shares appear undervalued by a reasonable margin. A basic case that factors in a return to very modest growth yields an IV of $2.25.

That 50% upside isn’t bad but might not be realized in 2011. Revenue growth won’t occur until 2012, which means that 2011 will still be a year of no growth and quarterly losses. From what we can tell, management would probably endorse the forecast we put together to support the IV. This means that if we have only the enterprise scenario to rely on, growth will be limited even into 2015. However, one potential wildcard is the consumer, but that’s also one on which we don’t think that iPass has visibility at present.

Disclosures: None