Tintri IPO: The Fundamental Problems

Summary

• Tintri, a tech company which sells cloud and storage capabilities, had a lackluster IPO debut which raised $60 million.
• While Tintri can boast strong revenue growth, the rate of growth is slowing and the company is highly unprofitable.
• Tintri faces heavy competition in its market and similar companies have struggled in the past when going public.
• Investors should not pay Tintri even the slightest consideration.

Last week was a big week for tech IPOs as companies like Blue Apron and Tintri (NASDAQ:TNTR-OLD) went public. And last week was a disappointing week as these tech companies slashed their initial share price expectations, and then failed to meet even those expectations. In Tintri’s case, the storage company slashed its initial pricing from $10.50 to $12.50 to $7 to $8 at the last minute, leaving some investors stranded and surprised by the change. But after a lackluster start, Tintri sits at a mere $7.25 per share and raised just $60 million.

Is now a good time to take a look at a company on the cheap? Absolutely not. There are very few merits to Tintri and a host of problems which it has failed to adequately answer. The hospital consulting company is unprofitable, its revenue growth is slowing, and it is in a market which has seen other companies fail due to changing technological circumstances. This is not a worthwhile investment.

Typical Tech Problems

Tintri in some ways emulates the problems which far too many tech IPOs possess. Its revenue has ballooned in the past few years according to its SEC filing, going from almost $50 million in the fiscal year ending January 2015 to over $125 million in the same period ending January 2017. And Tintri claims that since it projects the storage hardware market could reach over $27 billion in 2018, it has plenty of growth potential.

But while Tintri can claim that its revenue growth shows its potential, the rest of its numbers are extremely concerning. Tintri lost over $105 million in 2017 compared to a net loss of $69 million in 2015. By comparison, Tintri claims to have $49 million in cash and $97 million in total assets as of April 30, 2017. We are looking at a company with ever increasing losses that will need to turn things around extremely quickly, as it cannot afford losses of this magnitude given its cash on hand and amount raised in the IPO.

Even that revenue growth which Tintri would like to point to is problematic. Tintri’s revenue was $86 million in 2016, which means that its rate of revenue growth percentage wise slowed in 2016 compared to 2015. Investors thus face the problematic scenario of an unprofitable company with high but slowing revenue growth. Discerning tech investors should remember the Snap IPO earlier this year, which had similar problems and whose stocks has plummeted in value since. Indeed, the Renaissance IPO ETF (IPO), which tracks recent stock listings, has risen 30 percent over the last year but dropped 3 percent in the past month. The overall environmet for tech shares is not a good one.

A Competitive, Problematic Market

But at least Snap could legitimately argue that it was changing social media. In addition to problematic numbers, Tintri could be negatively impacted by technological changes in its market.

Tintri is a data storage company which tries to be something in between traditional IT infrastructure and cloud-based offerings like Amazon Web Services. Its prospectus argues that its “enterprise cloud platform not only delivers many of the benefits of public cloud infrastructure, but also gives organizations the control and functionality they need to run both enterprise and cloud-native applications in their own private cloud.”

But there are problems with this. By trying to essentially be multiple things, Tintri faces heavy competition. Public cloud is simply growing more popular and the Amazon Web Services behemoth continues to swallow everything in its path. Furthermore, similar companies when going public have struggled as well. Nutanix (NTNX), a competitor whose IPO was in October, has a current value at about half of its IPO debut price. Pure Storage Inc. (PSTG), which went public in 2015, is trading below its debut price.

Investors are clearly wary of enterprise storage companies like Nutanix and Pure Storage in the face of the growing popularity of the cloud and Amazon and will need a good reason to invest in another, similar company. Tintri has not provided that reason.

A Time of Caution

Investors are getting more cautious now after the Snap debacle. This is a bad time for a company facing significant losses and heavy competition with no clear path towards profitability to go public, and that is precisely what Tintri has done. The results have been bad so far, and there is no reason to believe they will improve.

There is very little in Tintri’s favor to make it worthwhile, and investors should ignore it even at its current low price. The only thing to note is that tech companies must be more careful before going public as investors are stingier now.

Analyst’s Disclosure: I/we 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.