A big tech IPO just flopped and now the company is worth less than when it was private

Pure Storage managementPure StoragePure Storage CEO Scott Dietzen (2nd from right) and his team.

Pure Storage, one of the most anticipated tech IPOs of the year, failed to live up to its expectations on its first day of trading.

The flash storage provider went public Wednesday, but began trading below its $US17 IPO price, and closed the day at $US16.01.

That gives Pure Storage a market cap of around $US2.9 billion, slightly below the $US3 billion-plus private market valuation it garnered last year.

“We always knew this was going to be a marathon, not a sprint,” Pure Storage president Dave Hatfield told Business Insider. “The measurement we’re going to look at is going to be measured in years and decades.”

Pure Storage offers flash storage for companies to use in their data centres. Flash drives generally provide significantly better performance and speed, but is also much more expensive than traditional hard drives.

“We’re not experts on the valuation”

Hatfield stressed that the company’s been growing fast and has a $US24 billion market opportunity ahead in the overall storage industry, citing an IDC report. Gartner ranked Pure Storage third in the flash storage market, behind EMC and IBM.

“We’re not experts on the valuations of the business. We’re focused on creating value for customers and delivering consistent financial results in a really big market,” he said.

According to its S-1, Pure Storage made about $US174 million in revenue last year, roughly a 4X jump from the previous year. It’s already made $US159 million in the first half of this year, putting it on pace to hit nearly $US300 million this year.

But the revenue growth came with huge spending, resulting in a loss of $US180 million last year. In the first six months of this year, it lost about $US112 million.

“We’re investing in the growth, and using the proceeds we earn to invest into that $US24 billion market,” Hatfield added, saying ultimately the company’s goal is to bring its operating profit up to the 15% to 20% range.

IPO bellwether

Pure Storage’s IPO debut could serve as a bellwether for the rest of the tech IPO market, which has been slowing down in recent months. According to Renaissance Capital, the tech sector saw only one offering in the third quarter of this year, the lowest in six years. The overall IPO market has also cooled down this quarter, only seeing 34 total deals, down 43% from the same period of last year, Renaissance Capital said.

“The end of the quarter saw volatility at a new high, IPO returns at a new low, a dip in initial filings and a rate hike on the horizon, all of which suggest that IPO activity will continue at a slower pace than 2014,” Renaissance Capital wrote in a report.

But Pure Storage may be keeping an eye on its share price for other reasons too, as some of its competitors in the same flash storage space all saw their values drop significantly in recent years.

Fusion-io had a market cap of $US1.9 billion on its first day of trading in 2011, but was acquired by SanDisk for $US1.3 billion in 2013. Violin Memory saw its first day market cap of $US763 million drop to $US144 million by last month, while Nimble Storage is trading at nearly half of its first day value at around $US1.9 billion now.

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