Cacheflow turns on the
spigot
By Gracian Mack
Redherring.com
November 20, 1999
At the beginning of the month Cacheflow (Nasdaq:
CFLO) planned to launch its initial public offering of 5
million shares of common stock in a price range
between $11 and $13 per share. But with the
networking sector seeing several triple-digit percentage
gains this month, the deal became ripe for an increase.
Working a growing expertise in
the business of creating husky
market capitalizations for
technology companies, Morgan
Stanley Dean Witter (NYSE:
MWD), Credit Suisse First
Boston, and Dain Rauscher
responded to demand, first by
making the issues more costly to
own. Last Wednesday night the team upped the
investor ante by increasing the price range to between
$18 and $20 per share. In the late '90s, there seems to
be an unwritten consumer notion of value along the
lines of, "If it is more expensive, it must be good, and I
have to have it."
The underwriters ended up pricing the issue Thursday
night at $24 a share, $4 above the top of the range,
and then they waited until past noon on Friday to
release the offering. By that time, investors had built
such a high volume of buying pressure that the stock
opened with a premium of 371 percent, or $113 per
share.
Buyer enthusiasm didn't stop
there. Cacheflow shares reached
a high of $139.25 before tiring
and coming to rest at $125.94, up
425 percent over the offer price,
on 7 million shares traded.
CACHE A WAVE
Based in Sunnyvale, California,
Cacheflow's technology works by
storing Web data in its appliances
so that users don't have to go to a
site's Web server to get content.
This process, commonly referred to as caching, can be
used to speed the performance of Web sites by
bringing the data closer to the individual requesting it.
The IT research firm the Gartner Group projects that
U.S. market for caching will grow from $92 million in
1999 to more than $1 billion in 2003. The research
firm IDC projects that the number of Internet access
devices worldwide will grow from an estimated 120
million in 1998 to more than 515 million by the end of
2002.
There are a host of caching veterans that compete with
wider product offerings, deep pockets, and longer
operating histories. Among those competitors is Cisco
Systems (Nasdaq: CSCO), which is currently trading
near $88.18 per share and has a market cap of $290
billion; Inktomi (Nasdaq: INKT), currently trading
near $130.13 with a market cap of almost $7 billion;
Network Appliance (Nasdaq: NTAP), trading around
$116 with a market cap of $8.6 billion; and Novell
(Nasdaq: NOVL), which closed on Friday at $23.38
and has a market cap of almost $8 billion.
RAID CHARGE
Cacheflow's team recently negotiated some legal
disputes with its former employers. In September
Nokia (NYSE: NOK) filed a lawsuit in Santa Clara
County Superior Court charging Cacheflow's
president, Brian NeSmith, and senior vice president of
sales, Alan Robin, with raiding Nokia's employee
ranks. Prior to founding Cacheflow, both Mr. NeSmith
and Mr. Robin worked at Ipsilon Networks, which
was acquired by Nokia in 1997. When they left the
company, they took some Nokia people with them. In
November Cacheflow settled with Nokia on the
matter.
Benchmark Capital now owns an equity stake worth
approximately 14 percent of the company, down from
17 percent before the offering. U.S. Venture Partners
now holds a 9 percent equity position, down from
approximately 11 percent before the IPO. The offering
also slightly diluted the equity position of Technology
Crossover Ventures, which now holds a 5.6 percent
equity stake, down from 6.8 percent.
Sales reported for the fiscal year ended April were $7
million, with a net loss of $13.2 million. For the second
quarter (ended October), Cacheflow had net sales of
$4.8 million, an increase of $1.2 million, or 34 percent,
over the previous quarter. The company reported a
loss of $6.6 million for the quarter.
Although sales are on the rise, the bulk of them come
from a small number of customers. For the fiscal year,
three customers accounted for about 33 percent of
Cacheflow's net sales, and for the first quarter, one
customer, Road Runner, accounted for about 17
percent of net sales.
(Poster's Notes: a) cacheflow's system was soundly
defeated at recent caching competition by novl's ICS
b) the figure of 4.8 mill for the quarter should give
an indication of how much one can expect NOVL
to make this quarter from ICS c) i'll make no
comments about the valuation of cacheflow considering it faces so much competition from bigger and better
players..:) |
