In just days, California-based Aerohive Networks will begin
trading publicly under the ticker symbol
. The company sells cloud-enabled wireless services to businesses
The IPO will be relatively small as the company is only
seeking to raise as much as $95 million when it lists its shares
on the NYSE beginning Friday. But small isn't necessarily bad.
Here's the buzz on the
Aerohive competes in a tough market. By providing enterprise
wireless hotspots to companies and schools, Aerohive competes
with already successful companies like
Aruba Networks (
The main difference, which appears to be Aerohive's
competitive advantage, is that Aerohive focuses on wi-fi
solutions geared towards today's reality of cloud computing and a
large number of mobile devices connecting to the same
Aerohive isn't yet profitable, so investors could consider
that a black mark against the IPO. However its revenue growth has
been nothing short of impressive.
The company earned revenues of $15.6 million in 2010, $34
million in 2011, $71.2 million in 2012 and $107 million in
While the revenue growth is clearly there, the company
reported losses of $33.2 million on its $107 million in revenue
I have two major reservations about this IPO.
The first begins when you look at the list of investors. Five
major venture capital firms currently hold 74.4% of the company.
Venture capital firms make their money by continually
in "the next big thing" with the expectation that most
investments will be worthless but a select few will prove hugely
For venture capital firms, the IPO of a company in which they
have invested is the end game, the way the venture capital firm
realizes its profits and moves on to the next round of
Considering Aerohive company is 75% owned by these venture
capital firms, there could be a lot of profit taking after the
IPO. And profit taking means selling. A lot of selling means
it'll be tough to find enough buyers to keep the stock price
My next major concern with this IPO has to do with Aerohive's
Aerohive competes against companies like Cisco and Aruba
Networks to provide enterprise-level wireless hotspots and
connectivity. The company bills itself as better able to cater to
the smaller clients (like schools) and that its services are
better suited for cloud-computing and mobile device needs.
I find this assertion to be a bit ridiculous.
Exxon Mobil (
had a competitive advantage because its gas stations offered TVs
in the gas pumps to help people stay connected in this modern
world, its competitors would simply install TVs in the gas
If a company's competitive advantage is something that its
competitors could easily adopt, it is hardly going to remain an
advantage for long.
What's more, Aruba Networks is a $2.16 billion company and
Cisco is a $112 billion company. After its IPO, Aerohive will
likely be valued around $500 million.
Even if Aerohive has a major head start in the race to offer
wireless services catering to cloud-computing and mobile
connectivity, surely its much larger competitors are in a
position to outspend Aerohive and build a much more comprehensive
As much as Aerohive's business looks different from its
competitors, Aerohive, Cisco and Aruba Networks are all
ultimately selling the same thing: wireless internet access.
I'm inclined to believe that its larger competitors can invest
in better services and that Aerohive will ultimately
But the real buzz on the Aerohive IPO is the 75% of the
company owned by venture capital firms. That tells me that there
will be a lot of selling after this IPO and that I'm best served
by staying clear of HIVE.
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