Marimba Does The IPO Mambo
Wall Street's rookie stock, Marimba, the Internet software specialist founded by Sun Micro alumna Kim Polese, danced up a storm on its first day of trading.
Marimba (MRBA) priced 4 million shares at $20 each. The stock opened up 195 percent to 59. It quickly ran up to 66 1/2, before settling up 40 3/4, or 203 percent, bringing the value of the Silicon Valley company to $1.37 billion.
That's three times the value investment banker Morgan Stanley settled on after weighing fundamentals that argue for a more conservative valuation against the unknown retail demand that would greet the deal in the secondary market.
Institutional investors' responses to the company's road show had driven Marimba's offering price up 43 percent from original expectations -- an indication of a hot issue.
"On average, 10 times the number of shares is a good figure," said David Crowder, with Thomas Weisel Partners, the San Francisco investment banker. "The real strong deals have been between 10 to 40 times oversubscribed."
Mountain View, Calif.-based Marimba is in the hypergrowth industry of systems management solutions. The company's main product, Castanet, makes tools that allows users to distribute software over the Internet.
Essentially, the software helps companies distribute software upgrades to every desktop in the firm from central services. This solution avoids the time-consuming effort of delivering new software packages to every location and installing the software.
Marimba's client list includes discount brokerage house Charles Schwab (SCH), Internet service provider EarthLink (ELNK), Home Depot (HD), Sun Microsystems (SUNW) and Intuit (INTU).
Marimba's Castanet software allows Intuit to upgrade its Quicken product for its customers.
Most of its products use the Java programming language, developed by Sun, which makes them more versatile among the gamut of software systems, the company says. Polese was the product manager for the Java computer language while at Sun. Marimba also licenses digital-certificate security software from VeriSign (VRSN).
Marimba's pedigree includes backing from noted Silicon Valley venture firm Kleiner Perkins Caufield & Buyers. Douglas Mackenzie, a general partner with the investment group, is a director at Marimba.
Providing systems solutions for corporations is promising. Tivoli, a subsidiary of IBM (IBM), has been Marimba's primary reseller since 1997. While Tivoli's sales account for 1.3 percent of IBM's total sales, it is growing 50 percent annually. Analysts don't expect Tivoli to enter Marimba's space.
"It's difficult for other firms to enter the market because the company has had a two- to three-year head start and the intellectual property," said Tom Berquist, an enterprise software analyst at Piper Jaffray.
Berquist said other potential competitors include BMC Software (BMCS), Microsoft (MSFT) and Computer Associates (CA).
"However," he said, "thse companies are involved within the firewall - or inside the organization - not outside the organization, which is what Marimba focuses on."
Berquist also projects Marimba's business opportunity to grow into a $500 million to $1 billion industry over the next two to three years. This growth, he said, leads him to believe the "rich" valuation given the stock may be justified.
But, for now, Marimba continues to lose money. Already with an accumulated debt of $14.6 million, Marimba says in its prospectus that it expects a "significantly increase" in spending on research and development, sales and marketing. "In fact, we may not have any revenue growth, and our revenues could decline," the prospectus says. Last year, the company recorded $13.9 million in sales.
Historic run for IPOs
It's been a historic run for Internet IPOs in this young year. So far, 41 Internet-related initial offerings have stormed onto Wall Street, raising $3.1 billion. During the same period last year, only 11 Net firms went public.
An investor who bought into a basket of the 41 Net IPOs at their offering prices would be sitting on a 192 percent return. For those who weren't so fortunate and came in the day after - in other words, in the secondary market - the returns would pale in comparison. But those investors would still be up 141 percent.
So willing are investors to embrace the latest Net deal that cyber companies continue to knock on Wall Street's doors. In the pipeline are 82 dot.com deals queuing up for initial offerings.
The 31 IPOs that have filed initial terms expect to raise an aggregate $1.4 billion. Investment bankers have noted that they've never seen such a backlog of deals and don't expect a slowdown anytime soon.
Written By Bambi Francisco, CBS MarketWatch