Subj: NetStock! by Steve Harmon 1999.10.15 Sycamore Networks IPO
Date: 10/15/99 7:02:28 AM Eastern Daylight Time
From: steve@e-harmon.com (Steve Harmon)
Sender: Netstock-Report@LR.ListServe.com
To: Netstock-Report@LR.ListServe.com (Netstock-Report)
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e-harmon.com's
NetStock! by Steve Harmon
ceo of e-harmon.com
e-harmon.com
"for the internet investor"
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First there was Juniper and now Sycamore -- what's with the plant
thing for next-generation Internet broadband solution providers?
Barely a sapling of a company Sycamore Networks plans to go public next week, selling 6.5 million shares at a target $19 per share through underwriter Morgan Stanley.
Since its February 1998 founding Sycamore has been busy doing research and development, finally emerging from the lab only recently in May 1999 with what it thinks is a killer app, its SN6000 intelligent optical networking product. The software allows network providers to offer faster transfer of data without having to upgrade the network or retrain personnel.
Plug and zoom.
Sycamore ends its fiscal year in July so in its brief stint with a sellable product it's has had just one customer, Williams
Communications (WCG), the voice, data, Internet and video services provider. Williams cut a check for $11 million to Sycamore for its SN6000 which allows telcos, cable companies and ISPs to offer better performance cheaper.
Our analysis shows that on a fiscal 1998 basis Sycamore's revenue
multiple looks out on a limb with a saw. 163x. But remember, one
customer so far, and a fairly sizable check.
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Company Proposed ticker
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Sycamore SCMR
Offered 6.50
Primary 77.06
Options 1.69
Pool 18.64
Fully diluted 97.38
IPO target $19.00
FDS mkt cap $1,850.25
Annual revenue $11.33
Net loss $(19.49)
FDS cap/
Trailing rev. 163.30x
note: fds=fully-diluted shares outstanding
(c) 1999 e-harmon.com, Inc. the Internet investment source
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While Sycamore is a higher risk investment due to its early stage, the
market for broadband solutions is now. Rivals Lucent (LU) and Nortel
(NT) and CIENA (CIEN) are formidable and well capitalized in this
sector.
Another risk: Williams as the only customer so far plans on rolling out services using Sycamore's product but contractually isn't obligated to do so.
Offering a more cost-effective solution for faster networking does give Sycamore an advantage we believe. If revenue scales with the opportunity of broadband which we think is huge then a 25x to 35x revenue multiple may be in order for Sycamore on a forward-year basis.
If Sycamore gains market acceptance for its products (others in
development now) then the company could start to see significant
revenue scale in 36 months.
Our underlying belief though is that the better solutions eventually will belong to the larger networking giants aforementioned. Lucent and Nortel. Or with others that want to own the solution food chain like Cisco perhaps.
Along that vein if Sycamore can continue to live up to its namesake consolidation may see the forest and the tree.
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