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Ruckus Wireless Prices IPO $13-$15, Big Risks Remain

|Includes: Ruckus Wireless (RKUS)

Ruckus Wireless has priced its IPO at between $13 to $15 per share. According to an article in Forbes, the valuation of the company at a little over 4x revenues seems reasonable given Aruba Networks, a competitor, trades for about 3.4x expected 2012 revenues.

For anyone thinking of buying Ruckus Wireless shares at the IPO or later, I posted an article on MuniWireless detailing the risks and comparing them to Ubiquiti (NASDAQ:UBNT) and Aruba (NASDAQ:ARUN). On the other hand, wireless ISPs love Ruckus Wireless equipment.

If the economic climate outside North America worsens, it will have a huge impact on Ruckus Wireless revenues since a lot of those revenues come from outside the US and Canada. The other major threat to Ruckus's business is commoditization.

It is clear that Ruckus is being very opportunistic in its timing to go public. It is using the recent increased sales and profits, as well as improving (stock) market conditions, to go public without delay. Since the company does not have a long track record of profitability, a prospective investor will have to believe in: (a) dramatic growth in the demand for carrier class Wi-Fi offloading, outdoor Wi-Fi networks, and network capacity management; (b) Ruckus's continued ability to elbow out other competitors; (c) slow rate of commoditization of Wi-Fi equipment; (d) rapid growth in the Asian and Latin American economies (many of which have stalled); (e) quick turnaround in economic conditions in Europe. That's a lot of variables that need to come together for the value of your Ruckus Wireless shares to grow at a rate that will compensate you for the risk you are taking on a new company and the opportunity cost of not having invested that money in something that will give you a better return.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.