Contact: Scott Denne
It’s a play we’ve seen before: an enterprise company ingests massive amounts of venture capital to fund eye-popping top-line growth before debuting on Wall Street for Act Two. This version stars Pure Storage, a darling of the all-flash array market. Leave the kids at home for this one – Pure is posting an obscene amount of growth and when the curtain rises, it’ll be seeking an equally obscene valuation.
Pure’s now-public IPO prospectus shows that the company finished its most recent fiscal year with $174m in revenue, fully 4x its sales from the previous year. On a trailing basis, it generated $224m in revenue and the most recent quarter showed a more modest 3x year-over-year growth. As one would expect, there’s a massive investment in sales and marketing underlying that growth. That investment appears to be paying off as its sales and marketing spending – $153m last year –is ratcheting down to 87% of its revenue, from 128% last year and 177% the year before.
As expected, Pure still posts huge losses: $183m last year, up from $79m the year before. Its trajectory, however, points to eventual profitability. Overall, its costs are coming down – at least as a share of revenue – and the margins on its products are making meaningful gains. In the most recent quarter, Pure reached a 64% gross profit on its product sales, up from 59% last year and 49% the year before. To put that in perspective, NetApp, a storage provider that’s about 30-times larger (for now), generated a 54% product margin last year.
Pure’s last venture round, a $225m series F in April 2014, put a $3bn valuation on the company. No doubt it will be looking for a boost from that. To get a meaningful bump up, it will have to be valued at or above 15x trailing revenue. That’s a tough spot to hit, though not impossible. Recent high-flying hardware IPOs Arista Networks and Nimble Storage are both currently putting up about 7x off of comparably mild levels of growth (40-50%). For a better comp, you’d have to go back to the 2007 debut of Data Domain, whose growth was equally impressive, though slightly behind Pure’s, and whose IPO priced at 12x in a more sedated market for tech stocks.
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