Quantenna Communications IPO Terms Indicate A Strong Buy

Summary

Quantenna Communications has set its IPO terms to offer 6.7 million shares at a midpoint of $15 per share.

The company sells premium Wi-Fi chipsets for HD video and Internet of Everything markets.

The Wi-Fi chipset markets are expected to grow and expand rapidly.

Quantenna is well positioned to take advantage of that growth.

My opinion on the IPO is a STRONG BUY.

Quick Take

Quantenna Communications (Pending:QTNA) wants to raise $100 million in its IPO, offering 6.7 million shares at a midpoint price of $15 per share.

The company's proposed post-IPO market cap is approximately $500 million, which is even lower than my previously bullish perspective on it at $600 million.

My opinion is a STRONG BUY of the Quantenna IPO.


Company Recap

Quantenna manufactures premium chipsets for the rapidly growing Wi-Fi and Internet of Everything markets.

Its chipsets facilitate faster delivery of HD video streams throughout Wi-Fi networks and are included in wireless set-top boxes, gateways, video bridges, access points and related devices.

According to ABI Research, more than 20 billion Wi-Fi chipsets will ship between 2016 and 2021.

ABI also says:

This will occur as Wi-Fi solutions branch out into new usage scenarios, frequency bands, device types, and performance requirements.

I previously analyzed the company in detail here, before its IPO terms were set:

Quantenna Communications: This $100 Million IPO Is A Video and IoE Play

The company's financials from a revenue and gross margin perspective are impressive, with 57% YoY revenue growth rate and 49% gross margin.

However, Quantenna has consistently used cash from operations, though the negative cash flow has been dwindling in the most recent six-month period in 2016.

New IPO Terms, Valuation And Commentary

Quantenna has now set a price range for its IPO of between $14 and $16 per share, for a midpoint of $15.

The company intends to use the IPO proceeds for general corporate purposes and has not provided any additional specifics on future plans.

Quantenna is offering 6.7 million shares, for an expected gross proceeds of $100 million, subject to over-allotment share options to the underwriters.

At this price, the company is proposing to value itself post-IPO at approximately $491 million.

Thus, the company is valuing itself on a Price/Sales multiple of 4.3x on sales growth of 57% YoY.

This compares to publicly-held competitor Marvell, which is experiencing negative sales growth and a Price/Sales multiple is 2.78x.

In my previous take, I suggested an IPO valuation of $600 million was reasonable.

Given the company's positioning as a provider of premium HD video chipsets for the rapidly growing Wi-Fi video and IoT markets, and its $500 million proposed valuation, I'm bullish on the IPO.

My opinion is a STRONG BUY of the Quantenna IPO.


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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.