Riverbed Comes Out at $9.75

Riverbed became a public company today, getting a welcome reception from investors with a higher share price and count than it had forecast.

The WAFS vendor priced an offering of 8.8 million shares at $9.75, above its proposed price range of $7 to $8.50 and more than its original plan of 8.4 million shares. (See Riverbed Sets IPO Terms.) Riverbed raised $86 million in the offering.

That's not bad, considering Riverbed has yet to turn a profit and competes with vendors like Cisco, Citrux, F5 Networks, Juniper, and Packeteer in a growing but crowded market. And the share price rose in early trading - by noon it was at $14.57, an increase of more than 49 percent from its opening price.

Riverbed is the first storage company to go public in more than two years -- systems vendor Xyratex was the last in June 2004. (See Xyratex Files for IPO.) Data protection vendors CommVault and Double-Take and NAS vendor Isilon have filed for IPOs, with CommVault expected to price its shares this week or next. (See CommVault's One Step Closer.)

While storage IPOs have been few and far between, acquisitions have been plentiful. One analyst says those market dynamics may have led to Riverbed's high price, and could bode well for the other startups on deck to go public."When companies that aren't profitable yet IPO and come out in good shape, it shows there's interest, money, and demand, and maybe the perception there's limited supply," says Greg Schulz of StorageIO Group. "This shows investors are more interested to get into the tech market. There's money to be invested, and maybe there's a feeling you need to invest in companies while you can before they get snatched up. There's only a limited amount of companies available."

Riverbed reported revenue of $31.7 million over the first six months of this year, up from $5.2 million in the same period last year. Still, it lost $10.3 million over the first half of this year and $17.4 million last year. Riverbed appliances bring storage and file services to branch offices, a problem large corporations are looking to solve. (See Users Rally Round Remote Solutions and WAN Market Tops $236M.)

"The space is real and has been," Gartner analyst Joe Skorupa says. "I expect that Riverbed told a compelling story about their opportunity in a very rapidly growing market.

While its growth is impressive, it also faces more competition than ever. Just this week, Citrix launched WAFS devices from technology it acquired from former Riverbed rival Orbital Data, and it already has a partnership with Microsoft to deliver a branch office appliance. (See Citrix Widens WAN Strategy.)

Application acceleration vendor Blue Coat got into WAFS in March, and Cisco and Juniper are sleeping giants in the space, as neither has yet the reaped benefits of their WAFS and WAN acceleration acquisitions. (See Blue Coat Puts On Acceleration, Cisco Backs Into Optimization, Cisco Intros Services, and Juniper Takes Peribit, Redline.)At least one of Riverbed's public rivals says he welcomes the IPO. Packeteer CEO Dave Côté says another public WAFS vendor will help shape the market because most of the companies who sell WAFS and WAN optimization count it as a tiny part of their business.

"We need another public pure-play company in this space," says the CÉÔ.

He also says the IPO may not be such a benefit to Riverbed, considering the costs and restraints on a public company. Analysts and CFOs at private firms estimate it costs a company about $1 million a year after going public in extra fees primarily associated with complying with regulations such as Sarbanes-Oxley.

"Up until now, Riverbed's had its own way," Côté says. "Now they have more challenges and more constraints on what they can say about their business and when they can say it."

In its prospectus, Riverbed said it would use money raised in the IPO to expand the company, develop new products, and perhaps acquire companies.— Dave Raffo, News Editor, Byte and Switch