Infoblox Inc. Initial Public Offering
Infoblox (BLOX) is pricing 7.5 million shares at $12.00 - $14.00 per share. It hopes to raise $98 million on a deal expected to come on 4/20/12. The offering will give the company a total market cap of $572.0 million. The underwriting managers are Morgan Stanley, Goldman Sachs, UBS Securities and the co-managers are Pacific Crest Securities, JMP Securities, Stephens.
The Primary Business At Infoblox
According to Infoblox, its main product is a solution which combines real-time IP address management with the automation of key network control and network change and configuration management processes in purpose-built physical and virtual appliances. For people who are not in the computer business, this description makes it sound more complicated than it actually is. The first thing one should understand is that every computer on a network or on the internet is identified by an IP (Internet Protocol) address. This is a four number sequence (XXX.XXX.XXX.XXX) that is a unique identifier to a specific computer. What Infoblox does is take a domain name like seekingalpha.com and connect it automatically to an IP address.
The future of Infoblox's business looks secure, as the current IPv4 protocol (that's the four number sequence) is so popular that every number is about to be used. There is a new technology, IPv6 that uses a six number sequence. The IPv6 technology is so new that it hasn't been adopted by a lot of companies. For instance, I use Comcast to connect to the internet and I'm still not able to see a website that only uses IPv6 to link to their domain name.
There are many problems that companies like Infoblox need to work out before IPv6 can be properly implemented. One glitch that needs to be looked into is the DNS (Domain Name Server) blacklists. These lists might not work for emails that are sent over an IPv6 layer. Because IPv6 has a massive range of addresses, a spammer could send every email message from a unique IP address. Therefore, a recipient's machine would send up a spam flag to the DNS blacklist for every message, inundating DNS caches with requests. It will take a lot of time and effort on the part of many companies before IPv6 is working and Infoblox is on the forefront.
Infoblox's Main Competitors
Infoblox states in its S1 that penetration into its market is very light and it believes it can increase its market share because of a limited number of competitors. There are still a few companies in the exact same space as Infoblox. BlueCat Networks also develops and provides IP address management solutions to both the government and private sectors. BlueCat Networks is a private company and according to CrunchBase.com it has received venture capital funding of $27.8 million.
Another direct competitor of Infoblox is called Dynamic Network Services, or Dyn. Dyn has been in business since 1998 and just surpassed 100 employees. It describes itself primarily as an internet infrastructure-as-a-service (IAAS) company. Dyn powers email and DNS solutions for enterprise, small business and personal customers. Infoblox is one of the leaders in this space and is a technology partner with big names such as Cisco (CSCO), Avaya (AVYA), HP (HPQ), Juniper Networks (JNPR) and Microsoft (MSFT).
Infoblox had one profitable year back in 2010, but every other year it has lost money. The profit in 2010 was largely due to $6.9 million worth of product and license revenue that was required to be deferred from 2009. Total net revenue has increased steadily over the past three years and at a higher rate than the cost of revenue. In 2011, Infoblox lost $5.3 million on total net revenue of $132.8 million.
Conclusions For The Infoblox IPO
In recent weeks, both retail and institutional investors have been hesitant to purchase shares in companies who have yet to make a profit. However, because technology has been a hot sector and Infoblox has a low float of shares, it may receive a pop on its first day of trading. After preferred stock is converted to common stock, there will be around 114 million shares outstanding. Sequoia Capital owns 29.8% and officers and directors own another 27.4%. If you add in employee shares and other common stock that has already been issued, then virtually all outstanding shares not sold in the offering will be bound by a 180-day lockup agreement.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.