Endurance: 350% Rise In Valuations In Just Under 2 Years

| About: Endurance International (EIGI)
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The offer:

Endurance International (NASDAQ:EIGI) is offering 23,390,000 Shares of its common stock in the price range of $14 and $16 per share. The expected listing date is September 25, 2013, on The NASDAQ Global Market. (Source: IPO prospectus)

Business overview:

Endurance International is an emerging growth company, which serves "small and medium sized businesses", or SMBs, and provides cloud based products and services including initial website design and creation, email and commerce solutions, scalable and on-demand computing, storage and bandwidth, online marketing, security, mobile and productivity solutions. The company also offers some third party solutions through its delivery platform. The main industries, which the company serves include retail, media, recreation, merchandising, education, construction, medical, and entertainment.

As on June 30, 2013, approximately 80% of its subscribers were SMBs, and it generates about 70% its revenues from the United States.


There will be more than 76 million SMBs worldwide by the end of 2013, including 1.1 million new SMEs added during the year. SMEs are the backbone of the global economy, as they represent 99% of all private sector companies in the world and employ more than 90% of the private sector, non-farm workers.


Consolidated Statements of Operations Data:

FY 2012

(12 months)

H1 FY 2013

(6 months)




Cost of revenue



Gross profit



Gross margins



Sales and marketing



Engineering and development



General and administrative



Total operating expense(3)



Loss from operations



Net interest income (expense)



Loss before income taxes



Income tax expense (benefit)



Equity loss (income) of unconsolidated entities, net of tax



Net loss



Key points:

Positive points:

1. Cloud-based products and services:

The company offers the cloud based products and services. Nowadays, the cloud platform is the most popular platform among SMEs due to the various benefits mentioned below.

  • The rise in the Internet penetration.
  • Instant availability.
  • Scalability.
  • The availability of high data-transfer speed.
  • Changing corporate culture.
  • Cost-effectiveness.
  • The rising awareness among the business users.
  • Increase in the cloud-based digital offering and digital opportunities.

The rising popularity of cloud based services will argue well for the company in the future, as it will bring the more business and clients.

2. Huge and growing market:

The total addressable market for the company is huge and growing. SMBs are expected to spend approximately $96 billion annually on the cloud-based services by 2015, representing a CAGR of 28% since 2012.

3. Client base:

The company serves nearly 3.4 million clients. This huge client-base not only tells about its products/services quality but also gives the company an opportunity to cross sell its products/services with minimal efforts.

4. Development capabilities:

The company offers about 150 products and services. A significant portion of these products and services have been internally developed. The in-house products and services generates high margins.

5. Dynamic offerings:

The company follows a dynamic approach toward product development and offering. As mentioned the IPO prospectus:

"We regularly retire offerings that are underperforming and add offerings that we believe will be in high demand based on our data insights".

7. Revenue growth:

The company showed a significant revenue growth during the past three years, as its revenue grew from $87.8 million to $292.2 million, representing a compounded annual growth rate of 82%.

Key negatives:

1. Loss making entity:

The company is a loss making entity, as it showed a loss of 139.3 million and 64.6 million for FY 2012 and H1 FY 2013, respectively. It is expected that the company will continue to show losses in the near future.

2. Competitive industry:

The cloud-based product/service market is becoming more and more competitive by the every passing day, as more and more companies are entering the cloud market. Some of its prominent competitors include Cisco (NASDAQ:CSCO), IBM (NYSE:IBM), Google (NASDAQ:GOOG), etc.


In December 2011, entities and investment funds affiliated with Warburg Pincus and Goldman Sachs (NYSE:GS) acquires the controlling interest in the company for a consideration of $472.2 million in cash, issuance of 150,000 shares of series E preferred stock for $150 million, and a deemed capital contribution of $55.1 million from the ultimate parent company. The shares of series E preferred stock was later redeemed by the company for $150 million. So, the investment funds affiliated with Warburg Pincus and Goldman Sachs acquires over 85% interest in the company for about $472.2 million in cash.

At $15 (mid range of offer price) the company's valuations stand at $1.93 billion. At $15, the company is available at P/S of about 4.2x (trailing twelve months).

This means about 350% rise in valuations in just under two years (after the recent offering).


The company operates in a competitive and dynamic market. Its revenues showed an exceptional growth, in the recent years, mainly due to the acquisition that it made during these years. Its gross margins are low but operating as well as interest expenses are high. Moreover, its balance sheet holds over a billion dollars of debt.

Considering all the above things the company looks fully priced. I am of the view that the fundamentals seemingly do not justify over 350% rise in valuations (particularly with a debt-ridden balance sheet) in just under two years, yet its presence in the cloud industry can create some enthusiasm among the investors.

Data source: IPO prospectus.

Disclaimer: Investments in stock markets carry significant risk, stock prices can rise or fall without any understandable or fundamental reasons. Enter only if one has the appetite to take risk and heart to withstand the volatile nature of the stock markets.

This article reflects the personal views of the author about the company and one must read offer prospectus and consult its financial adviser before making any decision.

Disclosure: I 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.