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Fleetmatics Group PLCS (NYSE:FLTX) made its public debut on Friday. Shares of the provider of fleet management solutions ended their first day up 31.2% to $22.30 per share.

The public offering

Fleetmatics offers a mobile platform with software solutions for businesses to manage their fleet of commercial vehicles. Its solutions are helping to enhance the productivity of the fleet by extracting real-time data.

As of June 2012, Fleetmatics had over 16,000 customers who deployed the company's solutions in 281,000 vehicles. The company net added 44,000 subscriptions during the first half of 2012, compared to 65,000 in the full year of 2011.

The company sold 7.8 million shares for $17 a piece. Fleetmatics raised $106 million in gross proceeds in the offering process. Based on the offer price of $17.00, the firm is valued at $585 million.

The offering is quite a success. The offer price was set at the high end of the preliminary $15-$17 price range set by the firm and its bankers. The firm sold 6.25 million shares, while selling shareholders offered another 1.56 million shares. In total, 23% of the company's shares outstanding were offered. At Friday's closing price of $22.30 per share, the firm is valued at $767 million.

Major banks which brought the company public were Barclays, Bank of America/Merrill Lynch, RBC Capital Markets and William Blair, among others.

Valuation

Fleetmatics operates in the growing market of fleet management solutions. Fleetmatics cites a research report from Frost and Sullivan that there are 18.5 million commercial fleet vehicles in the US and Canada, of which just 11.3% uses a fleet management solution. The global market opportunity is estimated at 61 million and is highly fragmented.

As of June 2012, Fleetmatics has 281,000 subscribers. The company reported annual revenues of $92.3 million for 2011, up 42.7% on the year. The company reported a net profit of $2.9 million compared to a loss of $0.7 million in 2010.

For the first six months of 2012, the company generated revenues of $58.4 million, up 37.1% compared to the first half of 2011. Fleetmatics reported a net loss of $0.4 million, compared to a profit of $1.6 million in the first half of last year.

Fleetmatics will use the net proceeds of the offering for general corporate purposes. This includes repayment of debts, investments in marketing efforts and technology.

Excluding the offering proceeds, the company operates with $8.2 million in cash and $25.1 million in total debt, for a net debt position of roughly $17 million. Based on the gross proceeds of $106 million in the offering, the company will operate with a net cash position of roughly $80 million.

As such, the valuation of Fleetmatics operating assets comes in at around $687 million. Based on a rough annual revenue estimate of $125 million for 2012, the market values the operating assets at 5.5 times annual revenues. The company will roughly break even for the full year.

Investment Thesis

The offering of Fleetmatics is quite a success. Shares were offered at the high end of the initial guided price range of $15.0-$17.0 per share. Shares were eventually offered at $17 per share, and quickly rose to $22.30 per share on their first trading day.

As such, shares are trading some 39% above the midpoint of the initially guided range. Despite the strong cash balances, Fleetmatics does not expect to pay a dividend soon. Irish law requires companies to have profits available for distribution.

The sentiment around the offering has been relatively good. Strong subscription growth is combined with very low churn rates. During the first six months of 2012, the company had a churn rate of just 1.8%. The company did spend an impressive 35% of total revenues on marketing expenses, which was down 1% point compared to full year 2011 expenditures.

On average, a vehicle under subscription generates revenues of $416 dollar on an annual basis in the first half of 2012. The company spend some $20.2 million in marketing expenses to grow its subscriber base by 44,000 in the first half of 2012, resulting in acquisition costs of $459 per vehicle, just over 1 year's worth of average vehicle revenues.

I appreciate the strong revenue growth driven by solid growth in the number of subscriptions, and I see the market opportunity ahead. Still I don't think most businesses are interested in fleet management services given the reasonably high costs per annum, $416 on average for Fleetmatic's offerings. Customer acquisition costs are coming down, to little over one year of revenue which is still fairly high. On the bright side, churn rates remain very low.

After a 39% jump from the midpoint of the initially guided price range, I am very cautious. I love the business and the grow prospects, yet I remain cautious on the back of a high valuation, high marketing expenses and competitive threats.

Source: Fleetmatics - Not Interesting After A First Day 31% Jump