Category: cloud computing

Carbonite looks upmarket with Zmanda buy

Brenon Daly

Contact: Brenon Daly

After organically attempting to build up its SMB backup business over the past two years, Carbonite decided it needed to do some shopping to accelerate that initiative. The consumer-focused company said Thursday that it will hand over $15m for backup and recovery vendor Zmanda. It is Carbonite’s first acquisition since it went public in mid-2011.

Carbonite’s push into the SMB market is crucial for its business, but it is a risky move for a company that sold exclusively to consumers for the first five years of its life. Carbonite only unveiled an SMB offering in 2010, and that business currently contributes only 15 cents of every dollar in bookings.

As it looks to move upmarket, Carbonite is also facing risks to its core business. The consumer backup market is a lot more cluttered and confused than it was when Carbonite launched in 2005. For instance, Dropbox – although not a full backup vendor by any means – only got going two years after Carbonite, but it has nonetheless drawn 50 million users who store files in that service. Privately held Dropbox doesn’t disclose its revenue but it is thought to be nearly three times bigger than Carbonite’s.

The acquisition of Zmanda also comes as Carbonite is working through recent changes in its basic business, such as introducing additional editions of its core backup offering and shifting around its advertising spending. (Advertising is Carbonite’s single biggest expense, typically consuming about half of the company’s revenue in any given quarter.)

Carbonite has, admittedly, tripped up on a few of those changes. After posting 43% sales growth in the first half of 2012, it lowered its forecasted revenue growth rate to just 34% growth for the back half of this year. (Carbonite, which is in the process of swapping out its CFO, reports Q3 results on October 25.) Shares of the company are currently changing hands at their lowest level since the IPO. Wall Street values the backup vendor, which will record sales of about $83m this year, at just $160m.

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A highly remunerative Workday

Brenon Daly

Contact: Brenon Daly

Apparently, the third time is the charm for second-chancers. Workday became the third significant tech IPO in 2012 headed by executives who previously ran similar companies in the Internet 1.0 era. And while each of the other ‘redo’ companies (ServiceNow and Palo Alto Networks) have created more than $4bn of market value since their IPOs last summer, Workday soared past that level. In fact, on a fully diluted basis, the human capital management vendor is valued at more than the two other earlier IPOs combined.

In its offering, Workday priced its 22.8 million shares at $28 each, raising an eye-popping $638m. That’s a mountain of money, roughly three times more than most other ‘big’ tech IPOs raise. But that was just the start for the company, which was founded in 2005 by executives from PeopleSoft after that ERP veteran was acquired by Oracle.

Once trading began on Friday, the stock continued to move higher, changing hands at $47 late in the session. With about 160 million shares outstanding (on a non-diluted basis), Workday is being valued at $7.5bn. That works out to 30 times this year’s expected sales of about $250m. For an indication of just how rich that is, consider that PeopleSoft garnered just 4x sales when it was snapped up in 2005. Or another way to look at the price: Workday is commanding three-quarters of the valuation of PeopleSoft while only putting up one-tenth the sales of the first-generation version.

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Box goes for integrations, not acquisitions

Brenon Daly

Contact: Brenon Daly

Box hasn’t been a buyer. The enterprise file-sharing and collaboration startup has only inked one acquisition in its history, and that deal was done exactly three years ago. Meanwhile, the market is rapidly consolidating around it, with both big and small buyers rounding out their technology portfolios. Just this year alone, Box’s consumer market rival, Dropbox, has inked three purchases.

It’s not like Box can’t afford to go shopping. Earlier this summer, the startup pulled in $125m in fresh funding, bringing its total amount raised to $287m. But so far, it hasn’t put that toward M&A, preferring instead to partner with a wide swath of companies. Indeed, partnerships are a major theme at BoxWorks 2012, its ongoing annual customer conference. At the two-day event, Box announced partnerships with Proofpoint for data loss prevention and GoodData for analytic dashboards, along with other initiatives.

Part of what has kept Box out of the market is that it has sought to establish itself as an open, inclusive platform vendor. As part of that strategy, companies tend to favor integration ahead of acquisition.

But there comes a point for many companies when they need to own the technology outright. For cloud stalwart salesforce.com, that point came when the company hit its seventh year in business, which is where Box finds itself now. In the half-decade since then, salesforce.com has reeled off 26 deals that have taken it far beyond its core sales force automation product and helped create some $21bn of the company’s market value.

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Qualys: a quality offering at a tough time

Brenon Daly

Contact: Brenon Daly

Continuing a run of enterprise-focused IT security IPOs, Qualys has set an initial range of $11-13 per share for its upcoming offering. The range would value the on-demand vulnerability management vendor a bit above $400m, a rather conservative valuation for a company that will record bookings of more than $100m this year. We understand that Qualys will price its offering in two weeks, and we wouldn’t at all be surprised to see it debut at a price in the mid-teens. J.P. Morgan Securities and Credit Suisse Securities are co-leading the offering.

The IPO of Qualys would mark the fourth enterprise IT security provider to hit the market in the past year, following Imperva, Proofpoint and Palo Alto Networks. That makes this particular slice of the tech landscape the most active – and most lucrative – area for IPOs. Collectively, the quartet – including the roughly half-billion-dollar initial market cap we project for Qualys at its debut – will have created about $6bn in market value.

Two-thirds of that amount comes from the wildly successful IPO of Palo Alto Networks. But we would note that Imperva and Proofpoint have been fairly well received on Wall Street, with both offerings trading above water. That stands in contrast to the loosely related consumer security companies and, even more broadly, the overall IPO market, which is highly skeptical of new offerings as a number of recent high-profile IPOs have turned out to be big money losers for investors.

For instance, shares of consumer Internet security provider AVG Technologies have broken issue and are currently changing hands at nearly their lowest level since the company debuted in February. AVG’s woeful performance contributed to the decision by AVAST Software, a similar consumer Internet security provider, to pull its IPO in late July.

Undoubtedly, the bearishness around the consumer security market is weighing on the offering from Qualys. However, we suspect that pressure will be relatively short-lived for Qualys, and the company will enjoy the same strong aftermarket performance of other recent enterprise security IPOs.

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Co-founders set Workday IPO as ‘PeopleSoft 2.0’

Brenon Daly

Contact: Brenon Daly

Despite the initially abrupt and ultimately acrimonious end of PeopleSoft in the mid-2000s, many of the executives are back with another run at the public market. Workday put in its IPO paperwork late Thursday in what’s shaping up to be the most anticipated post-Facebook offering.

As a sign of that anticipation, Workday plans to raise $400m, nearly twice the amount of most ‘big’ tech IPOs and about four times more than the typical tech offering. To move all that paper, the human capital management (HCM) startup has enlisted no fewer than nine underwriters, led by Morgan Stanley and Goldman Sachs & Co.

Workday was founded in 2005 by Dave Duffield and Aneel Bhusri after Oracle pushed through its contentious $10.5bn deal for the first-generation ERP vendor. Perhaps conscious of how ‘their’ company got rolled into Oracle against their wishes, Workday’s two cofounders have concentrated ownership in their hands (collectively owning almost three-quarters of the company) and created two classes of stock. The structure effectively gives Duffield and Bhusri absolute control of all matters that go to a shareholder vote.

The rivalry with Oracle – and to a degree, SAP as well – also carries over into how Workday does its business. During pre-roadshow presentations, Workday executives noted that they typically pitched their on-demand product when enterprises were considering an upgrade of their current license-based ERP or HCM offering, such as Oracle’s PeopleSoft product. Workday has 325 enterprise customers.

So far, that approach has paid off in stunning growth for the company. It doubled revenue to $134m in the year ended January 31, and has more than doubled revenue in the two quarters since then: Workday recorded $120m, up from $55m in the year-earlier period. (It also has a mountain of nearly $250m in deferred revenue that it has piled up from its contracts that range from three to five years.)

The revenue growth so far in 2012 puts Workday loosely on track for revenue of about $250m. For comparison, that would make the fast-growing ‘redo’ about one-tenth the size of PeopleSoft when it was erased from the market.

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Rackspace acquires Mailgun in appeal to hosted app developers

Contact: Thejeswi Venkatesh, Jason Verge

Hosted services provider Rackspace isn’t known for big M&A. Instead, it has focused on tuck-in acquisitions that build off of its hosting platform. In keeping with that strategy, the company on Wednesday announced the purchase of email-enabling API provider Mailgun. The deal should help make the Rackspace cloud more attractive to app developers.

Terms of the transaction were not disclosed, but Rackspace typically pays relatively low prices for small assets. Founded in 2010, Mailgun raised $1.1m in seed funding and reportedly had six employees. The Y Combinator startup was increasing revenue at 20% a month prior to the acquisition.

Mailgun provides APIs that allow users to send, receive and track emails easily from within their own applications. In a report detailing the deal, my colleague Jason Verge notes that the ability to add email to apps is a key feature in widespread demand. Rackspace looks to provide all of the tools customers need to build their technology stack on their cloud, and Mailgun adds to this toolbox.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

VMware’s aggressive M&A of disruptive technologies

Brenon Daly

Contact: Brenon Daly

One of the highest compliments that can be paid to any technology company is to call it ‘disruptive.’ And by both organic and inorganic means, VMware has certainly earned that accolade. That’s on top of the more than $40bn of market value that it has also earned.

Starting with its homegrown server virtualization (a radically disruptive technology to the server industry), VMware has steadily expanded into other markets through M&A. Along the way, we’ve seen that at the root of disruption is conflict, with VMware’s acquisitions putting it on a collision course with vendors of various sizes in various markets.

For instance, VMware has taken some shots at Microsoft through purchases such as Zimbra and SlideRocket, which take aim at Microsoft cash cows Exchange and PowerPoint, respectively. More recently, VMware dropped $1.26bn on Nicira, a deal that could threaten Cisco Systems and other networking providers because Nicira’s technology effectively virtualizes networks.

And earlier this week, VMware bolstered its log management/analytics business by picking up Log Insight. The acquisition is a bit of an elbow jab at Splunk, which has collected a sky-high market capitalization of nearly $3bn as the market leader in log management/analytics. Of course, it’s important to keep these tussles in perspective – Splunk is still a Gold Sponsor at VMworld later this month.

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Eloqua hits right message at right time

Brenon Daly

Contact: Brenon Daly

The key to marketing is the right message at the right time. And in that regard, marketing automation vendor Eloqua hit both points squarely as it came public on Thursday. The company priced its shares at the high end of its expected range ($11.50 each) and then registered a mid-teen percentage gain in the aftermarket. The IPO created some $420m in market value.

Eloqua’s pitch is fairly simple: Its subscription-based platform makes the sales process for its roughly 1,100 customers more efficient. As corporate budgets continue to flow to marketing, Eloqua has actually been able to accelerate its growth rate as its revenue has increased.

The company was putting up revenue growth in the 30% range in late 2010, but has bumped that up to the 40% range over the past year. (It finished 2011 with sales of $71m, putting it on track for about $100m in sales this year. Assuming it does hit that level, it would represent a doubling of revenue since 2010.)

Wall Street, of course, pays for growth, so Eloqua is delivering the right message on the top line. Further, the revenue is coming in a relatively predictable manner: Eloqua sells only through subscriptions, which is a lot smoother than the traditional big-or-bust license model. Subscriptions account for roughly 90% of total revenue at Eloqua, with another coming 10% from professional services.

The timing of the offering, which has been on file for almost a year, also fits fairly well in the broader market right now. While consumer Internet offerings continue to get roughed up, investors have been supportive of enterprise-focused companies. Eloqua sells primarily to the B2B market, with enterprise customers accounting for about 60% of total revenue, and the remaining 40% coming from SMB customers. Add all that together, and it’s a solid start for Eloqua in its debut.

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Oracle adds network virtualization with Xsigo

Brenon Daly

Contact: Brenon Daly, John Abbott

A week after VMware made its network virtualization play with the blockbuster purchase of Nicira Networks, Oracle has expanded its own virtualization portfolio by reaching for I/O virtualization startup Xsigo Systems. Although both startups loosely fall into the category of ‘software defined networks’ (SDNs), Xsigo itself used that description only sparingly to talk about its business. And if we look deeper at the two deals by the serial acquirers, we see they’re actually quite different.

For starters, the targets were at very different stages of commercial deployment. Nicira only had a handful of customers, and we understand that it still measured its revenue in the single digits of millions of dollars. In contrast, Xsigo indicated that it had tallied roughly 550 deployments since it began shipping its product some five years ago. It was generating revenue in the tens of millions of dollars, according to our understanding.

Further, the strategic drivers for each of the networking acquisitions are quite different. For VMware, the purchase of Nicira represents its grand plan to do to switches through virtualization what it has already done to servers through virtualization. For Oracle, there’s arguably a more focused goal for Xsigo, at least in the near term. My colleague John Abbott speculates that Xsigo’s technology is likely to be deployed as a means of providing a broader virtualized network fabric to surround Oracle’s Exa family of systems, boosting the number of available network and storage connections and making them more suitable for hosting cloud services. Look for our full report on Oracle’s acquisition of Xsigo in tonight’s Daily 451.

VMware’s new era with Nicira

Brenon Daly

Contact: Brenon Daly

Having built a business valued in the tens of billions of dollars by virtualizing computing, VMware is now using its largest-ever acquisition in an effort to bring virtualization to networking. VMware will hand over a total of $1.26bn for startup Nicira. It’s a significant gamble for VMware, both strategically and financially.

The purchase is more than three times the size of VMware’s next-largest acquisition, and is roughly equal to the amount the virtualization kingpin has spent on its entire M&A program since parent company EMC spun off a small stake in VMware a half-decade ago. (VMware will cover the cost of the purchase from its treasury. As of the end of June, it held $5.3bn in cash and short-term investments, and it has generated $2bn in free cash flow over the past year.)

VMware has positioned Nicira, a company that only recently emerged from stealth, as a key component of its effort to put software at the core of datacenters. VMware has done that with servers – and to some degree, storage as well – by using software to essentially commodify hardware. It’s an approach that appears to undermine a once-cozy relationship with networking partner Cisco Systems. Incidentally, shares of the switch and router giant are currently at their lowest level in about a year, and it announced another round of layoffs at almost exactly the same time that VMware announced its big networking acquisition.

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