Public enemy

Pure Storage underwhelmed Wall Street somewhat with its public debut. Hannah Breeze investigates

Earlier this week, Wall Street was painted orange. In line with the furious hype surrounding the news of its IPO, Pure Storage execs - or so-called Puritans - flooded one of Manhattan's most famous streets in preparation for the company's New York Stock Exchange debut. Dozens of staff donning tangerine ties and salmon socks gathered on the famous thoroughfare to witness the momentous occasion, which came six years after the company was established.

"To our partners; thank you for your willingness to innovate along with Pure in the pursuit of better serving our mutual customers. We know many of you have experienced substantial pressure to stick with incumbent vendors," said Pure in a celebratory blog post. "[To] our fellow Puritans; you and your families have sacrificed in the service of our mission to revolutionise storage. Your smarts and sweat over countless long days and nights are what has set us apart, and have begun to change the storage industry for the better."

But the flames of orange were quickly dampened down, as by the end of its first day on the stock market, shares had slumped. Pure initially priced its shares at $17 (£11.09) but by the end of trading, that figure had fallen 5.82 per cent to just $16.01. At the end of day two, the price had slumped below the $16 mark.

It remains extremely early days for Pure's life as a public company, and the nature of the stock market makes it impossible to predict what is in store for the firm in the future. But the fact remains that successful tech IPOs have been something or a rarity in recent months, and even years.

In 2015 so far, just 12 per cent of US IPOs have been technology companies, according to data from Renaissance Capital. Although this makes it the sector with the third-highest number of public offerings so far this year - just healthcare and financial have topped it - the figure trails what it has been in recent years. So far in 2015, Renaissance Capital has counted 16 tech IPOs. The number has not been so low since 2009 - at the height of the financial crisis - when there were just 17. As a comparison, in 2013 and 2014 respectively, there were 45 and 55 tech IPOs in the US, according to the company's data.

And those tech firms that have taken the plunge recently have not fared that well.

Content-sharing firm Box was the first big tech IPO of the year, debuting on Wall Street to much hype. Trading opened at $20.20 at the end of January, but nine months on, at the time of writing, shares trade around the $11 mark. It was a similar story for flash firm Violin when it went public back in 2013. On its debut, shares traded for about $7 each, but at the time of writing, shares closed at $1.70 - a massive slump.

Rocky road?

Pure Storage has done a good job of making a name for itself since it truly ramped up its marketing efforts in the past few years. It has been keen to rain on the parade of rivals when they launch new products and has aggressively talked up its own offering, both in terms of products and channel programmes.

Its reputation as the primary challenger in the market is difficult to dispute. But when it first filed for its IPO, the shine seemed to disappear somewhat, when details of its financial performance were revealed - showing huge losses on its rocketing sales.

For the fiscal year to 31 January 2013, sales reached just $6.1m, but a year later at the end of its FY14, that had rocketed to $42.7m. For its most recent financial year, which closed on 31 January 2015, sales skyrocketed to $174.5m. But the firm is not profitable, it admitted in the filings. In its FY13, FY14 and FY15 respectively, Pure Storage made net losses of $23.4m, $78.6m and $183.2m.

In the run-up to its IPO, Pure got something of a taste of its own medicine, with rivals claiming the firm has been overhyped over the past few years and insisting the picture for Pure is not as rosy as it seems.

But Sam Routledge (pictured), solutions director of Pure Storage partner Softcat, said the IPO is just one step in the company's journey and should not be dwelled upon too much.

"It's good to see a tech IPO and they've been reasonably successful with it - there are always ups and downs in the share price immediately after these things," he said. "It is just another step on their journey. I know Scott Dietzen [Pure's chief executive] reasonably well and I don't think he saw the IPO as the goal.

"I don't think it was ‘we've done the IPO and now we're done' - I think it is part of the process to build a great company. I can't see everyone leaving or it all going crazy. It is just another access to funding for them. I think it is a good opportunity to make sure they are grown up. Finances in public is a really good thing."

Routledge added that market conditions might have impacted Pure's public debut.

"I think it is very much too early to judge," he said. "The markets are funny at the moment with all the China stuff, and Russia [and] Syria or whatever. It is really difficult to gauge. There are things outside of your influence of control. I think they are in it for the long haul and they won't be disappointed about where they have got to. They will see it as a platform for cracking on."

Repeat performance?

EMC's Josh Goldstein, general manager of its XtremIO flash unit, which competes directly with Pure, agreed that current market conditions are not ideal for an IPO.

"The market had been very strong for the last couple of years and would have supported this type of offering, but the market fundamentals have weakened in the last couple of months," he said. "Pure has grown quickly but it is losing a lot of money and is not on the path to profitability. Those kinds of things, I think, the market can be tolerant of them when it is very strong, but I don't know if this is a very strong market."

He drew comparisons between Pure and Violin's rise, but said forecasting the former's fate is an impossible task.

"They are comparable in many ways," he said. "If you look at Violin... and Pure Storage, they are well-publicised companies which grew rapidly in their early years.
Certainly for Violin, they were also losing a lot of money and there was a lot of hype around the offering, but they couldn't survive... as a public company. If you look at the timeline and progression... for both of those companies, they were pretty similar leading up to the IPO. There are some parallels you can draw."

Goldstein said that whatever the outcome, Pure's stock market trajectory will be intriguing to watch.

"It is going to be one of the most interesting lessons in market psychology and billion-dollar unicorns you will ever see," he said. "It will be quite interesting."