Some follow up from The Red Herring:
redherring.com
STORAGE STORY
On May 8, I wrote about Storagenetworks's (Nasdaq: STOR) plans to raise $162 million in an IPO
by selling 9 million shares at $18 each ("Storagenetworks's IPO goal raises eyebrows"). I panned
the company, which provides offsite data storage to corporations, noting that it touted research
in its prospectus projecting huge markets for storage. But the markets it touted were much
broader than the scope of the company's possibilities, so the bubbly statistics did little to reflect
Storagenetworks' future.
Over the short term, the hype hasn't mattered. Storagenetworks has the power brokers on its
side. Financial backers include Dell USA, the venture arm of Dell Computer (Nasdaq: DELL), and
Global Crossing (Nasdaq: GBLX). Goldman Sachs (NYSE: GS) priced the IPO at $27, a 50 percent
premium to the proposed offering price, and it raised $243 million.
The current stock price of $110 makes me look like an idiot -- at least momentarily. On the other
hand, looking at the company's growing losses and dismal financial metrics, I figure I'll be
vindicated. During the last six months, Storagenetworks lost $58 million on $13 million revenue.
The loss was much larger than the consensus estimate. And at that rate, it will blow through the
IPO funding in two years.
Storagenetworks currently has a market value of $10 billion, trades at 147 times revenue, and
suffers large negative gross margins and humongous operating losses. Perhaps most significant,
virtually all Storagenetworks' customers are Internet companies -- so one has to wonder about
its future growth prospects. |
