IronPlanet: heavy metal and high margins

Contact: Brenon Daly

We recently noted that for the IPO market, thin is in. The offering sizes for many of the would-be debutants have been trimmed, as have the initial valuations. But in one area, some of the companies that are looking to come to market are still very, very bloated: funding. Force10 Networks, which put in its IPO paperwork earlier this month, had hit up investors for more than $400m. Motricity, which filed back in January, also raised at least that much.

So it was refreshing to skim the recently filed prospectus from IronPlanet, an online marketplace for industrial machines. Certainly, brokering the sales of tractors and bulldozers isn’t the sexiest business. But there’s good money to be made, at least based on IronPlanet’s recent performance. The capital-efficient company has been profitable for the past four years. (And that’s GAAP profitability, not the ‘kinda, sorta’ profitability that most private companies talk about.) Although it has raised some $47m in venture backing, IronPlanet currently has $30m of cash and equivalents on its balance sheet – a number that’s growing.

The 10-year-old company has increased revenue more than 50% in each of the past two years, finishing 2009 with $54.7m in sales. (It sold nearly a half-billion dollars worth of heavy machinery on its network last year.) And IronPlanet isn’t just running its business for cash. It spends heavily on sales and marketing (44% of revenue in 2009) to increase its profile and has put some money behind its recent push to expand geographically.

Two years ago, IronPlanet started investing in business outside of North America. The international unit, which generates roughly 10% of total sales, currently burns cash, while the legacy North America unit hums along at about 20% EBITDA margins. (Overall gross margins stand at an enviable 78%.) In looking ahead to forecast Wall Street’s reception for this online marketplace, we might point out that eBay shares have tacked on 110% over the past year, twice the gain of the Nasdaq during the same period.