CommVault Swims in Public Pool

Another day, another storage IPO.

Data protection software vendor CommVault today priced its shares at $14.50 -- marking the second straight day a storage company went public by hitting the high end or better of its IPO target range. CommVault projected a price of $12.50 to $14.50 three weeks ago. (See CommVault's One Step Closer.)

CommVault raised $161 million, selling 11.11 million shares at the $14.50 IPO price. WAFS vendor Riverbed Thursday beat its forecast with a $9.75 IPO price, raising $86 million. (See Riverbed Comes Out at $9.75.) Shares of both companies rose sharply today. CommVault's shares rose 17.24 percent to close at $17 and Riverbed increased 9.48 percent to $16.75.

Replication vendor Double-Take and NAS vendor Isilon have filed with the SEC for IPOs, and a bunch of other storage startups are considering going public next year. (See Isilon Reveals IPO Plans and Double-Take Seeks IPO.)

CommVault has long been considered the best IPO prospect among private storage firms. CommVault -- unlike Riverbed, Double-Take, and Isilon -- has been profitable and it has the most revenue of the group. CommVault made $5.1 million on $109.5 million of revenue for its fiscal year that ended last March, and earned $1.9 million on $33.5 million in revenue last quarter.Before the back-to-back IPOs, no storage company had gone public since Xyratex more than two years ago. (See Xyratex Files for IPO.) Now analysts wonder if the success of the IPOs for Riverbed and CommVault will open the floodgates. Systems companies 3PAR, BlueArc, EqualLogic, and LeftHand Networks, InfiniBand chip maker Mellanox, and storage management software startup Onaro are considered the strongest candidates for IPO. EqualLogic and Onaro have reported profitable quarters, and the others are believed to be close.

One Wall Street analyst says the successful IPOs may prompt others to try and go public, whether they're ready or not. He believes most of the companies that have filed are not ready because they are not making money or generating enough revenue.

"This is going to give more confidence to the managements of companies with little revenues, earnings, and growth prospects," says the buy-side analyst who asked not to be named. "But the fact is that the costs of going or remaining public have gone up significantly in the last two or three years due to the huge burden of regulatory compliance. Under such circumstances, it makes little sense to go public unless revenues are more than $100 million or so."

CommVault meets those qualifications, but still has its work cut out for it keeping investors engaged as it competes with industry giants such as Symantec, EMC, and IBM for market share with its backup and recovery products.

Executives at some of the strongest candidates say they're willing to wait before taking the plunge. EqualLogic CEO Don Bulens says he's holding off until at least next year although his IP SAN company reached profitability a quarter ago and has firms such as Goldman Sachs wooing him for an IPO. He says he's more interested in building out a sales channel, growing the business internationally, and making product upgrades before going public."We've handily exceeded every financial metric and addressable market metric for filing, but we're focused on doing things that will make us a much more attractive public company," Bulens says. "We're going to be patient about making an offering. There will be nothing this year, but we're certainly thinking about next year."

Bill Chambers, CEO of EqualLogic's IP SAN rival LeftHand, takes a similar approach. Chambers points out LeftHand has 500 customers -- more than twice as many as Isilon -- and could be profitable but is spending heavily on expansion.

"We're content to let these guys have their day in the sun," Chambers says of the companies that have filed to go public. "They seem to be in quite a hurry to get out. It makes me wonder if there's pressure from investors. We could be a medium-sized, profitable company ticking along, but we're challenged by our board to grow aggressively. The board has asked us to keep our foot on the sales and marketing pedal."

Onaro marketing VP Byran Semple says his company has been profitable the past two quarters, and he expects this to be a third. Yet the firm has no plans to seek an IPO this year.

Backup software vendor Asigra has been profitable for close to a decade, but its executive VP Eran Farajun says he doesn't even want to know how to spell IPO."We have no intention of going public," he says. "The overhead burden is just not worth it. We have a good business now, there's no need to go public."

Besides adding up to $1 million a year in accounting costs for regulatory compliance, going public brings extra pressure to continue to grow each quarter. As LeftHand's Chambers says, "the flip side [of going public] is Wall Street's not going to forgive you if you miss a quarter."

Dave Raffo, News Editor, Byte and Switch