What you need to know about Nutanix’s blockbuster IPO

nutanix-bell

Technology firms that have been holding off their initial public offerings of stock for fear of lackluster investor interest may be rethinking those plans today.

The latest tech company to go public, the cloud computing company Nutanix Inc., saw its shares jump 66 percent from their initial offering price when trading opened today. Originally expected to sell its shares for $11-$13 apiece, the maker of hyperconverged systems that combine computing and storage into one appliance had hiked the price to $16 Thursday night, netting $238 million.

By the end of trading Friday, shares had jumped 131 percent, to an even $37 a share. The company’s market capitalization of about $5 billion is now two and a half times higher than the $2 billion valuation that it received after its last round of private equity financing in 2014.

Investors snapped up Nutanix shares despite the company’s never having turned a profit, a fact that might have turned off some investors a few months ago. But investors are still buying high-growth companies, and Nutanix’s revenues jumped 85 percent in the first half of 2016, according to its pre-IPO earnings disclosure. The cash may help Nutanix pay back the $75 million loan that it took out from The Goldman Sachs Group Inc. earlier this year before the 10 percent annual interest rate starts taking its toll.

Wall Street’s aversion to money-losing tech firms may have been softened in recent months by the successful IPOs of Talend Inc., Twilio Inc. and Line, the Japanese mobile messaging company. All three companies’ stock market success can be credited to their fast revenue growth and strong competitive positions, factors that are also working in favor of Nutanix.

“There is a strong future for a new generation of infrastructure that delivers the simplicity and agility of cloud,” said Stu Miniman, senior analyst with Wikibon, the research firm owned by the same company as SiliconANGLE. “Nutanix is the leading solution in the hyperconverged infrastructure space and has clear differentiation in a market that is now getting the attention of the largest IT players.”

Although investors clearly liked the offering, the massive first-day pop in price isn’t completely positive for Nutanix itself. When shares rise this much in an IPO, it’s also an indication that underwriters priced it too low, meaning that the company could have raised much more money had it priced shares higher.

IPO pricing can be tricky, especially in an uncertain market. It’s common knowledge that underwriters can push for a lower price that guarantees a pop so they can reward clients and other insiders, who often can sell quickly at a profit. Company insiders don’t benefit immediately because they generally are barred from selling for a period of months to years.

However, the fact that Nutanix raised its offering price on the eve of the IPO might indicate that the demand was simply much higher than underwriters or the company had expected.

Nutanix Chief Executive Dheeraj Pandey spoke about the company to theCUBE, the video unit owned by the same company as SiliconANGLE, at Nutanix’s .NEXT conference in August:

(* Disclosure: TheCUBE was the media partner at the conference. Neither Nutanix nor other sponsors have editorial influence on content on theCUBE or SiliconANGLE.)

Photo courtesy of Nutanix