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Shares of E2open (NASDAQ:EOPN) saw a disappointing public debut on Thursday. Shares in the cloud-based software solution provider ended the week at $13.50, 10% below their offering price of $15.00

The public offering

E2open, the provider of cloud-based, on-demand software solutions, sold 4.7 million shares for $15 a piece. E2open's solutions help its customers analyze their supply-chain processes on a real-time basis. E2open raised gross proceeds of $56.2 million at a $373 million valuation. Initially, the bankers and management set the offering price range at $15-$17 per share, which got revised to the low end of the range at $15 per share eventually. Selling shareholders offered just under 1 million shares, while the company sold 3.75 million shares. In total about 19% of its 24.9 million shares outstanding are being offered, valuing the company at $336 million based on Friday's closing price. Major banks that brought the company public were Bank of America/Merrill Lynch, William Blair and Canaccord.

A Cooling Hot IPO market?

E2open's public offering has not been a great success so far as initial shareholders have lost 10% in the first two days of trading. Other public offerings in the cloud industry have fared much better. Just a weak earlier, Palo Alto Network's public offering, which was 40 times oversubscribed, was a great success. Shares of Palo Alto Networks (NYSE:PANW) added another 7% last week. Shares of Splunk (NASDAQ:SPLK) have risen some 70% compared to their offering price. Other cloud-based names including Demandwire (NYSE:DWRE) rose over 50% after going public while shares of Guidewire Software (NYSE:GWRE) more than doubled.

Valuation

E2open generated annual revenues of $59.7 million in 2011, which marks a mere 7.6% growth, compared with 2010's annual revenues of $55.5 million. The growth rate picked up again in the first quarter of 2012 as revenues rose from $11.2 million to $15.5 million. A very important note in the release is that E2open actually changed its accounting guidance, which boosted its 2012 revenues by $10.9 million. Correcting for the adjustment, this implies that revenues fell in 2012 compared to the year before.

The company did, however, experience a sharp increase in bookings. In the first quarter, the company reported $37.8 million in bookings, bringing the total backlog to $102.6 million. The company reported an annual net loss of $0.2 million for 2011 and a first quarter loss of $2.4 million, or $0.37 per share, for the first quarter of 2012. Based on a rough annual revenues estimate of $70-$80 million for 2012, the firm is valued around five times annual revenues. While the valuation is pretty steep, many other cloud-based companies trade at revenue multiples surpassing 10 times.

Investment Thesis

E2open is a bit of a special case. Unlike most other cloud-based businesses, its growth is anything from spectacular. In fact, the business reported lower revenues in 2012 compared to the year before on certain accounting arrangements. However, the strong bookings resulted in a backlog of over $100 million, which is a strong indication for future revenue growth. At its current backlog, the company has secured orders for almost two years into the future at its current revenue base. The valuation multiples are not nearly as high as many of its competitors either. For investors with a high risk tolerance, an investment in E2open could be a long-term opportunity, given the relative low valuation.

Source: E2open - An Opportunity In The Cloud Market?