Based in South San Francisco Envivio (proposed ENVI) scheduled an $85 million with a market capitalization of $294 million at a price range mid-point of $11 for Wednesday, April 25, 2012. [S-1]
ENVI is one of eight IPOs scheduled for the week of April 23th. (Full IPO calendar here.)
Manager, Joint Managers: Goldman; Deutsche; Stifel Nicolaus.
ENVI believes it is in one of the fastest growing components of the $3.0 billion video infrastructure market: IP video processing and distribution solutions.
For the year ended January 2012 revenue was up 70% to $51 million from $30 million. EVNI has been marginally profitable the last three quarters and shows good sequentially quarter revenue growth.
COMPETITIVE RED FLAG
The most important competitive red flag is that ENVI says:
we expect to encounter direct competition in the future from one or more larger traditional network infrastructure providers that may be one of our systems integrators, such as Motorola Mobility (MMI), which is in the process of being acquired by Google (GOOG)) and Ericsson AB. These network equipment companies may provide, as a package, encoding solutions in combination with other equipment that they traditionally sell to service providers. S-1 Page 29
Motorola Mobility is in the process of being acquired by Google for $12.5 billion. Perhaps the worst competitor for ENVI to have is one of ENVI's own distributors (especially GOOG), because distributors by definition know who and where the customers are located.
While we like ENVI's sequential quarterly sales increases and recognizes that ENVI could be a successful niche player in its market, the idea of GOOG as major competitor is an important red flag. At the very least current and potential customers may take a harder look at ENVI's solutions, relative to GOOG/MMI's solutions, making it harder for ENVI to growth.
While we believe ENVI may increase from its IPO price, it's possible that ENVI may be shoved into a smaller niche by bigger competitors. Therefore, it seems prudent not be a long term holder of the stock.
Founded in 2000 ENVI distributes software-based IP video processing and distribution solutions that enable the delivery of high-quality video to consumers.
EVMI's solution is designed to enable service providers and content providers to offer high-quality video anytime, anywhere across a broad array of video formats, networks, consumer devices and operating systems.
ENVI's customers include mobile and wireline telecommunications service providers, cable multiple system operators, or MSOs, direct broadcast satellite service providers, or DBSs, and content providers, which includes broadcasters and content publishers, owners, aggregators and licensees.
ENVI distributes products and solutions globally through a network of channel partners, which includes leading telecommunications systems integrators throughout the world, as well as through ENVI's own direct sales force.
ENVI was founded by a small group of software and electrical engineers from France Telecom. France Telecom also agreed to provide ENVI with the reference MPEG-4 software platform developed over four years at France Telecom, and a worldwide and royalty-free license to several key patents addressing elements of the MPEG-4 standards in exchange for shares of ENVI's convertible preferred stock representing approximately 10% of ENVI's outstanding shares at that time.
As of January 31, 2012, ENVI had eight issued U.S. patents and five issued European patents. ENVI's patents will expire on various dates from 2022 to 2028
ENVI competes with companies focused on more traditional broadcast delivery, including Harmonic (HLIT). A year ago HLIT's stock was $9.25. It closed Friday, April 20 at $4.56, down 51%, not a good sign for stand alone companies competing in the industry.
For example, Harmonic cuts 1st-quarter revenue forecast, April 9, 2012…read more.
ENVI also competes with companies focused on multi-screen encoding, including Cisco Systems (CSCO), Inc. (through its acquisition of Inlet Technologies LLC) and RGB Networks, Inc. (through its acquisition of RipCode, Inc.).
ENVI expects to encounter direct competition in the future from one or more larger traditional network infrastructure providers that may currently be one of ENVI's systems integrators, such as Motorola Mobility (wikipedia) . MMI is in the process of being acquired by Google for $12.5 billion.
Ericsson AB (ERIC) is also named as a competitor. ERIC has a market capitalization of $31. 3 billion.
The big network equipment companies may provide, as a package, encoding solutions in combination with other equipment that they traditionally sell to service providers, thereby limiting the market for ENVI's solutions.
USE OF PROCEEDS
EVNI expects to net $61.5 million from the sale of 6.5 million shares. Shareholders intend to sell 1.26 million shares. IPO proceeds are allocated for working capital and general corporate purposes
Disclaimer: This ENVI IPO report is based on a reading and analysis of ENVI's S-1 filing, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.