Ubiquiti Networks, Inc. (UBNT) priced their 7.04 million share IPO at $15.00, the low end of the revised range of $15.00-17.00 (the original range was $20.00-22.00). The company is selling 2.4 million shares, while shareholders are selling the remaining 4.64 million shares. The company says it plans to use the proceeds for working capital and general corporate purposes. Based on the $15.00 pricing, the company will have a market capitalization of approximately $1.44 billion. UBS, Deutsche Bank, and Raymond James are leading the offering.
Ubiquiti Networks offers a portfolio of wireless networking products and solutions, based on their proprietary technologies, with a focus on underserved and emerging markets. The company has also recently introduced products for the enterprise WLAN and video surveillance markets. Ubiquiti’s business model focuses on user experience, while delivering a product with a disruptive price/performance. They describe themselves as a software company that sells hardware. They also do not employ a sales force and all of their sales go through distributors. But the driver of their sales is their user community. This community has over 60k members worldwide, that provide a basis for evangelism/marketing for the company. This community also provides support and training to other members within the community or new customers. Thus, the company only has a staff of 2 technical support persons, while shipping about 1 million devices per month.
Ubiquiti is not only a tech growth story, but a profitable one at that. The company has grown revenue at a 106% CAGR from $22.8M in fiscal 2008 (fiscal year ends June 30) to $197.9M in fiscal 2011. Non-GAAP net income grew at a 118.8% CAGR over this period from $4.8M to $50.3M. For the fiscal year ended June 30, 2011, Revenue was up 44% year over year, and net income (non-GAAP) was up 57%. The 2011 revenue split was approx 31% North America and 69% International; however, the company states the real mix is probably closer to 20%/80% with a percentage of NA sales to distributors actually shipping overseas.
The recent market volatility has put a halt to an IPO market that had been fairly robust in the first half of the year. Ubiquiti is the first offering to price since Labor Day, and it appears the “Buy Side” has been able to dictate the price on this. AS you know, timing in the market is everything, and frankly this company would have had no problem being well oversubscribed for at the original range if this came in the first half of the year. At the current price of $15.00 per share, UBNT is coming at 27x trailing earnings, and based on our estimates, approximately 16-18x forward earnings. This appears to be a very fair discount to some of the comps (including ARUN, FFIV, RVBD, BSFT and APKT), which are currently trading between 18-29x 2012 estimates. If the stock doesn’t open up to much you may be able to thank this lousy market for giving you the opportunity to buy a profitable growth tech stock at these levels ... because we don’t expect much stock to be around as far as allocations of the deal itself.