IPO Preview: The Active Network

| About: The Active (ACTV)

Based in San Diego, The Active Network (using the symbol ACTV) is scheduling a $187 million IPO with a market capitalization of $901 million at a price mid-point of $17 for Wednesday May 25, 2011. The full IPO calendar includes seven others totaling $3.25 billion.

Summary - Established in 1999, ACTV provides software as a service (SaaS) solutions via cloud computing to organizations with large numbers of participants for sports, community activities, outdoors and business events.

For the March 2011 quarter compared to the March 2010 quarter:

  • Sales were up 16% to $73 million
  • Loss was $11 million compared to a $12 million loss for the year earlier quarter
  • Gross profit declined to 53% from 56%

Valuation - Given how large ACTV is in terms of revenues ($280 million for 2010) and how long it has been in business (since 1999), where are the profits? ACTV lost $27 million for the calendar year ended December 2010.

Annualizing the March 2011 results, the P/E ratio is -20 (due to a loss), the price to earnings ratio is 3.1 and the price-to-tangible-book ratio is 10.9.

It seems that ACTV is emphasizing "cloud computing" when it should be emphasizing profits.

ACTV Valuation Metrics

Business - ACTV markets itself as a software as a service (SaaS) solution provider for activity and event organizers, helping connect with a large base of potential participants. From the introduction of its platform in 1999, ACTV has experienced significant growth and now has over 47,000 customer organizations and drives over 70 million annual consumer registrations.

Services - ACTV services include helping users reserve a campsite or tee time, sign up for a marathon or sports league, purchase a fishing or hunting license, or participate in a community event or corporate conference.

Market - ACTV believes that the activity and event registration and administration market has more than 800,000 potential customers in North America. ACTV targets four primary customer groups: Sports, community activities, outdoors and business events.

Revenue - ACTV generates revenue from technology fees paid by participants who register for activities through ACTV SaaS, cloud computing applications.

Competition - ACTV believes the primary competition comes from traditional “pen-and-paper” processing methods, which activity and event organizers are accustomed to using, spreadsheet software, basic desktop applications and registration by phone, mail or walk-up.

Additional sources of competition include companies that offer generalized business software that can also help register participants and/or manage the other important aspects of activities, such as content or contact management software programs, e-commerce solutions, enterprise resource planning software and other services having separate software modules.

Use of Proceeds - ACTV shareholders intend to sell 2.8 million shares. ACTV expects to sell 8.2 million shares to net $127 million. Also, $90 million is allocated to repay debt, the balance is for for general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.