MOUNTAIN VIEW — Pure Storage launched its initial public offering Wednesday, raising $425 million, but the first day of trading left shares of the flash data storage company nearly 6 percent below its IPO price.
“Overall we’re happy with the IPO,” said Tim Riitters, chief financial officer with Mountain View-based Pure Storage. “The IPO is one step in a long journey. We have been at this for six years, it’s an incredible market opportunity. We are going to take the next steps to really be the leader in this space.”
Shares of Pure Storage fell 5.8 percent to finish at $16.01, compared with an IPO price of $17. Despite the struggles in trading on day one for Pure Storage, industry watchers believe the company is well poised to disrupt the $24 billion data storage sector.
The IPO pricing put the company’s market value at $3 billion, Bloomberg News estimated. It’s the largest venture capital-backed tech IPO of 2015, according to Renaissance Capital’s IPO report.
The major investors in Pure Storage are Sutter Hill Ventures, Greylock Partners, Workday CEO and co-founder Aneel Bhusri, Pure Storage co-founder and chief technology officer John “Coz” Colgrove and Redpoint Ventures, according to the IPO regulatory filing with the Securities and Exchange Commission.
“Pure Storage is a good company and they have strong management,” said Tim Bajarin, principal analyst with Campbell-based Creative Strategies. “But they are in a competitive industry.”
For the fiscal year that ended in January, Pure Storage lost $183.2 million on revenue of $174.4 million, according to a regulatory filing with the SEC.
Revenue appears to be increasing dramatically, however. For the six months that ended in July, Pure Storage produced revenue of $158.7 million, although the company lost $113 million.
Pure Storage appears to be the fastest-growing company in the history of the storage industry, according to an analysis posted by Renaissance Capital, which tracks the IPO market.
The company uses flash memory systems as the foundation for its storage technology, rather than legacy disk-based systems.
“Flash as a media for storage is 10 times more performance, it’s faster, better for applications, all the things that you think of in terms of the application,” Riitters said.
What’s more, flash storage units are deemed to be more efficient in terms of the space required for the devices.
“A typical disk array for storage is about the size of a large double-sided refrigerator,” Riitters said. “A flash unit is about half the size of a microwave oven.”
The Renaissance report determined that Pure Storage took three years since its product launch to reach at least $200 million in revenue. Over the 12 months that ended in July, Pure Storage booked $274 million in revenue, according to Renaissance. Pure Storage is expected, by the end of this calendar year, to top $300 million in revenue, Renaissance estimated.
Investors in Pure Storage shouldn’t expect a profit anytime soon, the prospectus warned. And that’s a deliberate gambit by the company.
“Our strategy is to increase our investments in marketing, sales, support and research and development at the expense of near-term profitability,” Pure Storage stated in the SEC filing. “We believe our decision to continue investing heavily in our business will be critical to our future success. We anticipate that our operating costs and expenses will increase substantially for the foreseeable future.”
Pure Storage has about 1,100 employees, Riiters said. About a year ago, it had 600 employees, he said.
An array of factors imperil Pure Storage’s prospects.
“We face intense competition from a number of established companies that sell competitive storage products,” Pure Storage stated in the filing. “These competitors include Dell, EMC, HP, Hitachi Data Systems, IBM, Lenovo and NetApp.”
Other risks: The company notes that it has grown rapidly but might not be able to maintain or properly manage that growth.
“This market is under 10 percent penetrated today,” Riitters said. “We believe that this market will tip to all-flash. We’re excited about the journey ahead.”
Contact George Avalos at 408-859-5167. Follow him at Twitter.com/georgeavalos.
