August 31 - Facebook Face Plant Continues

August 31 Update  -  The day isn't over and after having one early investor sell millions of shares last week, and the "pundits" saying that revenues will slow down even more, the stock has reached $18.11 and a valuation of under $40 B. 

What do the artist Prince and CEO founder Zuckerberg have in common?  Both are associated with the number 1999.  In Zuckerberg’s  case, only briefly, as on Thursday, Facebook stocks continued to plummet, dropping as low as 19.82, before closing at $20.04. Not good for investors who jumped on board on the day of the IPO. 

Should the stock keep dropping, there will be fewer sales of little red corvettes, or Teslas, in Silicon Valley in mid August, when the lock-up ends and  employees can start selling up to 268 million of the 1.7 billion shares they have.

   

Facebook’s market cap (valuation) as of end of day Thursday was  $37.6  billion.  This   means that those who were projecting a  $100 billion valuation have to remain in hiding.  The person still coming out good in this is Kellogg School of Management assistant  professor  Anup Srivastava,  (accounting information      management). Srivastava;s   valuation model  arrived at  a base case valuation  of $25 billion.  http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html
 

Meanwhile, Facebook reported that as many as 83 million  (about 8.7%) of its accounts may be illegitimate. The includes duplicate accounts, misclassified accounts, and accounts deemed “undesirable”.  This 83 million figure is greater than the number of people who use Google on a daily basis.   
 http://www.bbc.co.uk/news/technology-19093078 .

So August isn’t starting out well for the firm. There’s the above and some of the team is starting to depart.  Ethan Beard, Facebook's director of platform partnerships, and Katie Mitic, the company's director of partnership marketing,  are both leaving the company.

To view Facebook’s quarterly financials, and learn more about their risk factors and issues they’ve identified, go to their updated  10-Q. This document is only about 60 pages.

http://www.sec.gov/Archives/edgar/data/1326801/000119312512325997/d371464d10q.htm

What is Facebook worth Revisited - Latest Earnings Report - Employee Stock Lock-Up Expiring Shortly

Facebook released their financial results on Thursday.  Facebook’s  growth figures in their first quarter   as a public company following their IPO would have been impressive for most companies.  Nonetheless,    

Facebook stock took ­­ a  face plant following   the earnings release.  Below is a second quarter summary of their financial results. On Friday, Facebook closed at $23.71.  This gives them a market capitalization of $44.5 billion.  Click to enlarge the table.  CEO Zuckerberg may stay under the radar for the next several weeks.  

 

 The $95 to $100 billion  IPO pundits are taking a low profile.  Probably focusing on their tweeting.

In May, GreenCrest Capital’s Max Wolf felt that Facebook's  financial numbers suggested a valuation of $60 billion.  This is 37%   less than the $96 billion Facebook was thinking of.  His figure as of July 27, is off by only $15 billion, on the high side. 

Also in May,  Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management, ran a valuation model and arrived at  a base case valuation  of $25 billion.  “This is based on the firm’s revenues reaching approximately $21 billion in ten years’ time from approximately $4 billion today, and the firm maintaining a high return on assets of approximately 20 percent.”   His model, as of July 27, is off by only $19 billion, on the low side.  The last link at the bottom of this blog leads to Srivastava’s original article in “Expertly Wrapped” an online publication by Kellogg faculty. This also provides  a link to his valuation model.  Discounted cash flow analyses can be a good thing!

As an amusing aside, average the two figures above by these individuals - $44.8 billion, off by only $0.3 billion !  A sample of two smartest guys in the room probably doesn’t qualify for wisdom of crowds status. 

Facebook will free up nearly 1.7 billion shares -  four times the number now trading,  beginning in August.  Provisions   currently barring  employees from selling their holdings will start.  Unfortunately for the employees, if they execute these immediately, they are taxed as regular income. 

Shares of online coupon purveyor Groupon Inc. declined 8.9% when its lock-up expired on June 1.  The stock dropped nearly 20% that week. Likewise, shares of online gaming company Zynga Inc. fell 7.9% when its lock-up expired on May 29. The stock price ended up falling    9.1% for the week.  Look for some sort of dip as Facebook employees start selling some of their stock,  and people continue accessing Facebook on their mobiles. No revenue for Facebook when they do this.

Real estate agents in Palo Alto,  Atherton, and Menlo Park (where Facebook is headquartered), are probably looking at Facebook’s stock price a lot more than mortgage lending rates. 

http://www.latimes.com/business/la-fi-facebook-shares-20120728,0,1045145.story

http://kensek.blogspot.com/2012/05/is-facebook-really-worth-96-billion-in.html

 

http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html

 

A Bit of a Red Face under the Hoodie for Facebook

Facebook has to have a bit of a red face, as well as some of  the investment firms they worked with, as  Facebook closed opening day on NASDAQ  at $38.23.  Meaning no first day pop.  Well, a  0.61% pop.  Part of this may have had to do with the market as a whole, as NASDAQ ended up down 1.24%.  Others wrote that     initial trading glitches at the beginning of the day played a part. Facebook is trading under FB.  No confusion with Bulgaria Air, flight code FB, is expected.

The lackluster opening, the highest the stock went was about $43, means individual investors will be able to buy  Facebook stock at the same price shares were offered to privileged investors, wrote USA Today.  Investors who piled in the first day lost as much as 15% in just a few hours.Facebook ended the day with a $104 billion valuation. And  with $16.1 billion in cash. 

The company  never fell below $38 during the day.It touched $38, a lot in the afternoon.  The price likely would have dipped below $38 if the IPO's financial underwriters hadn't moved to help prop it up, said Sam Hamadeh, CEO of the New York analyst firm PrivCo.

CBS News  commented that while the deal was the second largest in U.S. history, after GM,  the first day of trading was more “whimper than bang”.  566 million shares were traded by the end of the day. 

However, what about that lack of pop?  As written about in a previous blog, there is a whole psychology to first day pops, where “the smartest guys in the room” would like to see a pop for the individual investors.  But not too large a pop, because that would signify leaving money on the table (reduces cash available for investments and purchases of hoodies). The   below contains a link to a Wall Street Journal article about this.

Quiz question.  What Bay Area firm had an 89% opening day pop in March?  Annie’s Inc., the maker of organic and natural foods such as bunny-shaped crackers did this on the NYSE.  They trade as BNNY. 

http://kensek.blogspot.com/2012/03/89-first-day-pop-for-firm-going-ipo-on.html

 

Now that they’re public, Facebook will have to be a lot more “visible” to the investment community, and file all those quarterly reports on earnings.  The tradeoff firms make in order to get investment capital with an Initial Public Offering (IPO)!

It could get a bit interesting in November.  Facebook granted Restricted Stock Units to employees (RSU's) to allow them to participate in the growth of the company.  The    RSU's are not counted as shares under securities laws.  So Facebook avoided having to file for an IPO when it hit 500 shareholders.  The downside is that  RSU’s don’t qualify for taxation at capital gains rates (around 15%).  Facebook employees will be looking at a combined state and federal tax rate of 45% on their RSUs.  

Meanwhile, a number of Facebook employees may be leaving work a little early on Friday.  There was an all nighter  event at  Menlo Park  Facebook headquarters, prior to the NASDAQ opening bell  rung by CEO Mark Zuckerberg. Friday morning.

Is Facebook Really Worth $96 Billion in an IPO?

Facebook will be taking their IPO (Initial Public Offering) show on the road next week.  They’ll be visiting investment firms and banks to talk up the IPO and the figures developed by their “smartest guys in the room”.  Of course, these companies will be having their own smartest guys in the room listening to the pitch, looking at the numbers and trying to see if it makes sense.  Also, markets aren’t always rational.  Despite what the numbers say, when too many people are chasing too few shares and irrationality takes over, or when an IPO is priced  incorrectly, there could be a sizeable positive pop.

Moreover, blips in Q1 results are making some people nervous.  Q1 revenue was up 45% versus last year to $1.06 billion while net profit decreased 32% to $205 million.  Revenue growth in Q1 was up only slightly over Q4 2011. These are  not good things.  Other activities that have raised some concerns:

• Facebook agreed to pay $1 billion for Instagram, a company that makes it easy to share photos
• Facebook paid $550 million for patents filed by AOL and owned by Microsoft
• Facebook in March was hit with a lawsuit in March filed by Yahoo that alleged that Facebook   infringed on 10 Yahoo patents.  There are now 16 on the list. 

The figures Facebook filed with the US Securities Exchange Commission is to have an initial stock price   of $28 to $35 per share.  This would equate to a valuation of $70 billion to $88 billion. 

Sam Hamadeh of PrivCo thinks the IPO price will be between $38 and $40 per share.  "Facebook will mostly be given the benefit of the doubt ... but they still have a lot to prove," Hamadeh said.  "Especially after big IPO investors have been badly burned buying into the IPOs of Zillow, Groupon, and Zynga, all of which are trading well below their IPO prices.  They don't want to get burned again."

GreenCrest Capital’s Max Wolf believes that the financial numbers suggest a value of $60 billion.  This is 37%   less than the $96 billion Facebook is thinking of. 

Should Facebook go public at $28 share, initial investors like hi  tech investment fund FirstHand Capital would suffer an immediate paper loss.  They had purchased shares at $31 to $32 dollars and can’t sell their shares for six months after the IPO. 

BIA Kelsey’s Jed Williams stated that revenue would have to grow 41% annually over the next five years to justify Facebook’s   numbers.  This would suggest revenue almost 460% larger at the end of year five.

Morningstar believes that Facebook’s revenue would have to increase from 2011’s $3.7 billion with profit margins of 27% to $40 billion over the next six to seven years to justify the $96 billion valuation at time of initial public offering. 

According to Bloomberg - “Facebook is betting its growth prospects will persuade investors to pay 99 times earnings for its initial public offering, a higher multiple than 99 percent of companies in the Standard & Poor’s 500 Index.”

At the low end of the IPO range, Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management has a base case scenario of $25 billion.  “This is based on the firm’s revenues reaching approximately $21 billion in ten years’ time from approximately $4 billion today, and the firm maintaining a high return on assets of approximately 20 percent.”

Different smartest guys in the room.  Different assumptions and models.  Different numbers.  And people are still trying to figure out how to value advertising revenue on mobile devices. The roadshow begins Monday.  Less than two weeks and then the IPO fun begins. I

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/05/03/BU3L1OD101.DTL#ixzz1twf3ZXjg

 

http://kensek.blogspot.com/2012/02/is-facebook-really-worth-100-billion-in.html

Palo Alto Networks Files Registration Statement for IPO

 July 6 - Go to  http://kensek.blogspot.com/2012/07/palo-alto-networks-ipo-roadshow-to.html  for an update

Next Generation Firewall (NGFW) vendor Palo Alto Networks filed for an IPO (Initial Public Offering) April 6. The valuation of the Initial Public Offering, - $175 million. No date for the IPO has been given. With a fair amount of certainty, you can predict that it won’t coincide with the Facebook IPO.

http://www.marketwatch.com/story/palo-ato-networks-files-plans-for-ipo-2012-04-07
 

To view the complete S-1 for the Initial Public Offering, go to the link below. As usual, Risk Factors abound. Palo Alto Networks (The Network Security Company™) has about 25 pages of Risk Factors including the lawsuit with Juniper Networks regarding patent infringement. This NGLS (Next Generation Lawsuit) hasn’t been settled yet. According to Palo Alto Networks in the S-1, “We intend to defend the lawsuit vigorously.” The S-1 is about 150 pages of light reading.

http://www.sec.gov/Archives/edgar/data/1327567/000119312512153764/d318373ds1.htm

Palo Alto Networks announced total 2011 revenue of $119 million. For the first six months of fiscal 2012, $114 million! Pretty impressive. They lost $12 million in 2011 and for the six months of fiscal 2012 are showing net income of $7.1 million.

The company hasn’t specified how many shares will be put up for sale in the IPO, nor at what price. It also didn't say what ticker symbol it will trade under. PAN doesn’t seem to be taken yet.

Palo Alto Networks doesn’t have to worry about NGFW vendor SonicWall taking the winds out of their IPO. Thoma Bravo sold SonicWall to Dell in March for about $1.2 billion. They had taken SonicWall private for about $750 million a couple of years ago.

Morgan Stanley & Co. LLC, Goldman, Sachs & Co., and Citigroup Global Markets, Inc. will act as lead joint book-running managers for the offering, and Credit Suisse, Barclays, UBS Securities LLC, and Raymond James & Associates, Inc. will act as book-running managers for the offering.

Palo Alto Networks and Check Point Software Technologies are the only two companies in the Leader portion 2011 Gartner Magic Quadrant for Enterprise Firewalls. They rate highest with Vision and Check Point highest with Ability to Execute. Their lawsuit friend Juniper is in the Challenger quadrant with a handful of others. Hewlett Packard is in a not enviable portion of the Niche Players quadrant. Another challenge for Meg Whitman and the Hewlett Packard management team for 2012.

Palo Alto Networks was also the highest rated vendor in the NSS Labs 2012 Next Generation Firewall Security Value Map, released during RSA San Francisco.

http://kensek.blogspot.com/2012/03/sonicwall-palo-alto-networks-top.html

Fast growth. Profitable. Gartner likes them. Multiples models including three series of firewalls with different platforms within those depending on throughput, VPN's, sessions desired, etc. Favorable test results from NSS Labs though Palo Alto Networks isn't the only NGFW vendor. You can't call everyone else's NGFW (Fortinet, SonicWall, among others) a kludged together UTM (Unified Threat Management) appliance. Let the pricing of the stock and subsequent valuation (don’t forget to allow for that required first day pop (money left on the table, ouch!)), begin!

http://kensek.blogspot.com/2012/03/palo-alto-networks-ipo-preparations.html

Avaya Delays IPO to Avoid Competing With Facebook, Others

Facebook, that $100 billion dollar gorilla having an IPO (Initial Public Offering) in a couple of months, is effecting other company’s IPOs now. Other companies are looking to delay their IPO’s.

Officials with Avaya, a networking, and communications vendor are worried about a lukewarm response if it launches its $1 billion IPO around the same time as Facebook. Avaya executives may wait until later this year or 2013 before its initial public offering. They don’t want to be lost in the wake of more anticipated IPOs this year from companies such as Facebook and Palo Alto Networks.

http://www.eweek.com/c/a/Enterprise-Networking/Avaya-Delays-IPO-to-Avoid-Competing-With-Facebook-Others-Reports-226959/

Facebook came out valued at $102.8 billion after its final stock auction on the secondary market as March ended. That’s more than $7 billion beyond what the company was valued at the start of Friday, with its stock price climbing from $41 to $44.10 a share. Facebook’s IPO should be in early May.

No official word on how this will affect Palo Alto Network’s $250 million IPO. Estimated valuation of the IPO, $1.5 billion. More on their IPO at

http://kensek.blogspot.com/2012/03/palo-alto-networks-ipo-preparations.html

Other companies still talking about an IPO – Avast, as previously written about. Workday, which makes HR software, and ServiceNow, which makes technology management software. www.workday.com and www.service-now.com Yes, there is a hyphen in the name.

An unfortunate side effect of Facebook stopping its selling of shares on secondary markets is that the online private equity market SecondMarket will lay off 30 of its 130 employees, according to CNET. SecondMarket has risen to prominence as a venue for buying and selling stocks for private companies, such as Facebook, Twitter, and Zynga.

http://news.cnet.com/8301-32973_3-57406814-296/secondmarket-expected-to-lay-off-20-percent-of-staff/

March 20 - Palo Alto Networks IPO Preparations Start to Heat Up

March 20 Addendum

Palo Alto Networks will seek to raise about $250 million in an initial public offering this year that would value the Internet security company at about $1.5 billion, said a person with direct knowledge of the situation.

The company chose Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. as its underwriters and will submit an S-1 filing in a couple of weeks.

http://www.bloomberg.com/news/2012-03-19/palo-alto-networks-said-to-file-250-million-ipo-in-weeks-1-.html

Nothing in the press yet as to what quarter the IPO will take place. Some more conversations will take place at Check Point and Juniper, most likely. Palo Alto Networks coined the phrase Next Generation Firewall (NGFW), though other companies rightfully can say that they offer the same functionality. SonicWall and Fortinet, for example. S-1's make interesting reading as companies have to start letting the investment community look more deeply into the company's financial workings, and view (the copious) risks that the company has identified.

Original Post

Palo Alto Networks has supposedly hired Morgan Stanley, Goldman Sachs, and Citigroup to lead its (IPO) initial public offering, which is expected this year. The IPO market is definitely heating up. Palo Alto Networks received a recommended rating in NSS Labs’ latest firewall report. Palo Alto Networks was also recognized as a leader along with Check Point Software Technologies in the Gartner 2011 Magic Quadrant for Enterprise Network Firewalls. You can go to the Palo Alto Networks site to register for and download both the Gartner and the NSS Labs reports. Pundits will probably be coming up with a valuation in the coming weeks.

Strengths Gartner Mentioned Include

· Highly effectively application identification, application categorization, and ease of confguration

· Performed is as advertised in specification sheets (now that’s a novel idea ;))

A Few of The Cautions

· Lacks Common Criteria EAL-4+ for Information Technology Security Evaluation for the firewall

· Limited number of models when compared with competitors

· Some confusion with respect to selling into the secure web gateway (SWG) marketplace

http://www.paloaltonetworks.com/cam/gartner/index.php

NSS Labs 2 page analysis, the “2012 Next Generation Firewall Security Value Map™” was released during RSA San Francisco 2012. The value map illustrates Block Rate versus Price per Protected Mbps. The SonicWall SuperMassive E10800 and the Palo Alto Networks PA-5020 NGFWs were the “winners”, far up in the right hand corner. http://www.paloaltonetworks.com/cam/nss-labs/2012-svm.php

and http://kensek.blogspot.com/2012/03/sonicwall-palo-alto-networks-top.html

What would Palo Alto Networks valuation be in an IPO? You may want to look at the “ratios” from companies like Check Point Software Technologies, Juniper Networks, and Cisco and back calculate for some estimates as to its value during an IPO. Estimated revenues for PAN - $700 million.

Fun times for Founder and CTO Nir Zuk, principal engineer at Check Point Software Technologies and one of the developers of stateful inspection technology, and the rest of the Palo Alto Networks management team as this IPO moves forward.

http://www.reuters.com/article/2012/03/08/paloaltonetworks-ipo-idUSL2E8E88P820120308

Is Facebook really worth $100 billion in an IPO?

The press, online press and blogosphere, is overrun with pundits, non pundits, people who may understand valuing a private company, and many more who have no idea how to do so, regarding what Facebook’s valuation would be in an IPO (Initial Public Offering). Now, you can perform your own quantitative analysis to arrive at a value.

Asup Srivastava is an Assistant Professor in Accounting Information and Management at the Kellogg School of Management. He posed the question in an interesting article, “Is Facebook really worth $100 billion?” Beyond that, Asup has included a nice spreadsheet (also an interactive web version) along with the article. You can enter your own best information and perform a 10 year discounted cash flow analysis to arrive at an IPO valuation of your own.

This is a straightforward model for those with any financial, accounting, or analytical background. The model has much substance than doing a revenue multiplier and other rules of thumb floating around the internet. Those “smartest guys in the room” at investment banks have more sophisticated models, but it would cost you $$$$ to get access.

http://expertlywrapped.wordpress.com/2012/02/08/facebook-valuation-tool/

The article is included in “Kellogg Insight”, the Kellogg School of Management's online magazine covering faculty research.

More on Anup Srivastava

Anup Srivastava is an Assistant Professor in Accounting Information and Management. He earned his PhD in Accounting from Texas A&M University, MBA from Delhi University, and BTech from IIT Delhi. Anup’s research focuses on the financial reporting area. His current research interests include revenue recognition, accounting conservatism, disclosures, and executive compensation.

What Would Avast Software’s Valuation be as a Public Company?

On December 20, Avast Software filed with the SEC for an initial public offering (IPO) of $200 million in common shares. UBS Limited and Deutsche Bank Securities Inc. are acting as joint bookrunning managers and Pacific Crest Securities LLC, Morgan Keegan & Company, Inc. and Macquarie Capital (USA) Inc. are acting as co-managers for the proposed IPO. Avast promotes that they are protecting over 146 million active users and 189 million registered users. Nice installed based to talk about for an initial public offering The freemium model covers a substantial number of these users.

A Quick But Often Used Valuation Methodology for an IPO

In the interest of brevity, methods of valuing a company for IPO purpses include - Book Value, Internal Rate of Return (IRR) Profit/Sales Multiple, P/E (Price/Earnings ratio), Dunn-Rankin formula, free cash flow. In the link to the attached article, the author also talks about the asset approach, the earnings approach, and the market comparison approach. Discounted cash flow analysis would be great, but does involve a fair amount of conjecturing.

So, let’s use the price multiple approach for an Avast IPO. For the six months ended June 30, Avast reported a profit of $23 million. This was an increase from $4.4 million during the same period last year. Revenue increased 87% to $37.9 million. Double that revenue to annualize it, and assume a little growth over the second half of the year. Instead of $75.8 million, let’s say $80 million. Their total 2010 revenue was $48.5 million. This is probably still conservative since their first halve 2010 revenue was $20.2 million.

From an earlier blog, Symantec paid a revenue multiple of 5x and 4.8x for PC Tools and Message Labs, respectively in 2008. In 2009, McAfee paid a revenue multiple of 4.9x for its acquisition of MX Logic. These were all security acquisitions.

Different industries have different price multiples. The risk is different. Margins are different. A software company isn’t a steel com company, nor is it an appliance company.

Intel’s acquisition of McAfee wouldn’t be a valid comparison because McAfee obtains a substantial portion of its revenue from appliances. Ditto for any multiple that could be back calculated from the Thomas Bravo December 8 $1.3 billion proposed acquisition of Blue Coat Systems. Blue Coat obtains a substantial amount of revenue from its appliances. Bravo paid a 48% premium over the previous day’s stock closing price and about 19 percent off the highs of Blue Coat’s share price in January. http://dealbook.nytimes.com/2011/12/09/thoma-bravo-acquires-blue-coat-systems-for-1-3-billion/

And the Answer is

Using the 5x figure for Avast Software, suggests a total valuation of $400 million. This may not be unreasonable give their rapid growth. The paperwork filed with the SEC lays out a number of potential risks. But that's what this paperwork is for.

Again, the above is crude. There are multiple better methods. It does provide a rough estimate. The company is generating cash. They are profitable. As of June, they had about $85 million in the bank. Let the underwriting number crunching continue.

For a May update 

http://kensek.blogspot.com/2012/05/avast-gradually-moving-forward-with-ipo.html

To view Avast’s F-1 form filed with the SEC, go to http://www.sec.gov/Archives/edgar/data/1537133/000104746911010159/a2206699zf-1.htm

http://kensek.blogspot.com/2011/12/avast-software-files-for-200-million.html

Jan 2012 - AVG Technologies Announces Filing for Proposed Initial Public Offering (IPO)

February 2, 2012 Addendum from Reuters - AVG Tech shares fall on market debut

“Shares of AVG Technologies NV (AVG.N), the maker of free PC and mobile anti-virus software, fell 19 percent on their market debut as investors grow wary of high valuations for newly listed technology companies.”

AVG shares closed at $13, which would mean a company valuation of $707 million. Shares had been sold to investors at $16. For the complete article:

www.reuters.com/article/2012/02/02/us-avgtech-idUSTRE8112EZ20120202

My estimated valuation in a July 26, 2010 blog, using a revenue multiple model, was about $750 to $800 million. Within 7 to 12 percent of the first day closing price! I increased this to over $1.2 billion earlier this year with more current revenue information. Whoops. The wonders of valuation models.

January 13 2012 update - AVG Technologies announced on January 13 2012 that it has filed a Registration Statement on Form F-1 with the U.S. Securities and Exchange Commission in connection with the proposed initial public offering (IPO) of its ordinary shares. AVG has applied to list its ordinary shares on the New York Stock Exchange under the symbol "AVG."

http://www.marketwatch.com/story/avg-technologies-announces-filing-for-proposed-initial-public-offering-2012-01-13

This is a change from previously when they were talking about having an initial public offering on the London Stock Exchange or Warsaw Stock Exchange. According to Reuters, AVG Technologies has filed the IPO for up to $125 million. 2010 revenue was $217 million. Revenue through Q3 was $198 million.

A quick valuation? Assume total revenue for 2011 will end up being $264 million (4/3 x 198). Using a 5x multiple (typical for some other security software valuations), the total valuation of AVG could be around the order of $1.3 billion.

Some AVE revenue figures for 2008, 2009, 2010, and 2011 (you'll have to expand the screen or try clicking on the graphic below). These are from the F-1.



http://www.sec.gov/Archives/edgar/data/1528903/000119312512011146/d218946df1.htm



Original Blog January 11 2011 ---------------------


November 2011 rumors from a Brenon Daly blog - the451group.com . "Several sources have indicated that both AVG Technologies and AVAST Software have picked their underwriting teams and should be filing prospectuses in the coming weeks." http://blogs.the451group.com/techdeals/ . This may be a case of Daly having too much time on his hands.

Initial Public Offering (IPO) plans shelved - see http://kensek.blogspot.com/2011/02/avg-technologies-sets-pricing-on-235.html - February 12 update

For AVG Technologies in 2010, the acronym IPO appears to have stood for “Is Put Off” temporarily or “Is Postponed Only”. After telling the Prague Post on September 29, that “there has been no decision made by the shareholders or anyone else to list in Poland or Prague or anywhere else." http://www.praguepost.com/business/5854-avg-boosts-product-ipo-vague.html there was pretty much been a clamp on news about the IPO. This was in response to an article that November 10 was the IPO date. http://kensek.blogspot.com/2010/09/avg-technologies-ipo-to-appear-on.html

A Q1 initial public offering could make sense for AVG Technologies. In a September 15 Reuters article, “Czech AVG's IPO to be worth 400-800 mln EUR”, Q1 was mentioned as the potential IPO date.

http://www.reuters.com/article/idUSWSF00947520100915 The IPO would probably still occur on the London Stock Exchange (www.londonstockexchange.com) (UK) and/or the Warsaw Stock Exchange (www.wse.com). While the IPO market heated up in the US in the latter half of 2010, this was not the case in Europe. Not having an IPO in 2010 also gave AVG the opportunity to more quietly perform some late Q4 adjusting of staffing levels.

Why No IPO in 2010

There are variety of potential reasons for the IPO not taking place in 2010. The board may have decided to delay. They may not have liked the capitalization, valuation arrived at. The projected numbers for either revenue or licenses for Q3 and Q4 may have been missed. Institutional investors may have not have shown enough interest. AVG Technologies may have been surprised by competitor activities. They may have been disappointed with the 2011 release. Expenses may have been running too high, effecting margins and the company may have wanted to deal with this prior to going public. They also may have still been studying other alternatives to going public while providing an exit strategy for investors to cash out on at least some of their investment.

Some Alternatives to an Initial Public Offering

• Get acquired by a larger internet security/antivirus competitor – Symantec and McAfee would be the obvious choices. Would these companies do it for the market share, to have an alternative brand, to purchase technology, other? Symantec already has PC Tools as an alternate brand. PC Tools also has a free antivirus product for their customers. McAfee doesn’t have a “B” brand, but they do have SiteAdvisor, an AVG LinkScanner(r) competitor. It probably wouldn’t make sense to keep both SiteAdvisor and AVG LinkScanner active.

Under these scenarios – Symantec would have approximately 19.7% of the worldwide antivirus market share if they acquired AVG. A McAfee acquisition would result in a 14.7% market share. The current market leader is Avast with 17.5%. *

• Merge with an internet security competitor as phase one of an exit strategy - With respect to size, Avast and Avira come to mind. Avast! Currently has more customers at 135mm and have recently had a cash infusion. They are also Czech Republic based. Neither Avira nor Avast! Have a major US presence. Avira claims about 100mm customers.

An Avast/AVG merger would result in a combined market share of approximately 27.2%. An Avira/AVG Technologies merger or acquisition would result in a combined market share of about 18%.*

*The above is based on figures from OPSWAT’s “Security Industry Market Share” report for Q4. See http://kensek.blogspot.com/2011/01/opswat-report-on-worldwide-antivirus.html The report is available at www.oesisok.com. http://www.oesisok.com/news-resources/reports/MarketShareReportDecember2010.pdf

• Get acquired by a vendor that may be interested increasing their presence in security - United States companies that come to mind are Cisco and Hewlett Packard. There have “always” been rumors about these companies being interested in Trend Micro. CRN suggested that Oracle should be interested in Trend Micro. Perhaps they would be interested in AVG, though Trend Micro gets a substantial portion of their revenue from business internet security products.

Activities To Increase AVG's Security Position in 2011?

• Purchase share by acquiring a smaller competitor. Virus Bulletin shows close to 100 vendors/products on an alphabetic listing vendors with security solutions (not all of these are smaller than AVG) http://www.virusbtn.com/vb100/archive/results?display=vendors

• Identify and purchase a smaller competitor or competitors that may be more advanced from the perspective of its scanning engines, or cloud technology.

• Purchase additional functionality for the core product. This could be encryption technology, for example (which both Symantec and Trend Micro acquired last year through acquisition).

In July, AVG Technologies had “appointed Goldman Sachs, JP Morgan, Morgan Stanley and UBS as bookrunners for its upcoming IPO with Jefferies acting as co-lead manager.” They may have some additional business reevaluating and updating their valuation (capitalization)during Q4 based on the most current data and competitor movements. http://www.ifre.com/equities-avg-appoints-for-uk-ipo/598999.article

If the company suddenly books a band, something may be coming up!

For additional details, go to “September Addendum - AVG Technologies Prepares to Go Public”
http://kensek.blogspot.com/2010/07/avg-technologies-prepares-to-go-public.html

August 2011 comment - The IPO market has been heating up in Silicon Valley. However, "pundits" are commenting that the recent stock market gyrations following the downgrading of the US government credit worthiness may temporarily put a damper on IPO activity.