Riverbed Technologies, Inc. (NDAQ:RVBD) are up over 50% today in the company's debut on the NASDAQ. This move comes after the stock had already priced above its expected range of $7.00 to $8.50, by IPO'ing at $9.75. Why all the excitement? Well, Riverbed has developed unique technology that may disrupt an established market - something investors love to hear. According to their
S-1 filing with the SEC:
"Riverbed® has developed an innovative and comprehensive solution to the fundamental problems of wide-area distributed computing. Historically, computing within an organization across wide area networks (WANs) has been plagued by poor performance, IT complexity and high cost. Our Steelhead® appliances enable our customers to improve the performance of their applications and access to their data across WANs, typically increasing transmission speeds by 5 to 50 times and in some cases up to 100 times. Our products also offer the ability to simplify IT infrastructure and realize significant capital and operational cost savings."
They also noted several specific benefits that their company's products and services offer consumers:
- accelerate performance of applications and access to data over the WAN;
- consolidate geographically distributed IT resources;
- reduce the need for WAN bandwidth;
- shorten storage back-up and replication time over the WAN;
- provide local storage for continued access to remote files during WAN failures; and
- improve productivity and reduce frustration for IT managers and end-users.
However, there is one problem with the company - they are not yet profitable:
"We have not yet achieved profitability. We experienced a net loss of $17.4 million for the year ended December 31, 2005. As of December 31, 2005, our accumulated deficit was $31.5 million. We expect to continue to incur losses, and we may not become profitable for the foreseeable future, if ever. We expect to make significant expenditures related to the development of our business, including expenditures to hire additional personnel relating to sales and marketing and technology development. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We would have to generate and sustain significantly increased revenue to achieve profitability. Our revenue growth trends in prior periods are not likely to be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. We may incur significant losses in the future for a number of reasons, including those discussed in other risk factors and factors that we cannot foresee."
While the company's revenue growth numbers are impressive (nearly tripling year over year), the fact is that their expenses have increased at a greater rate than their revenues between 2004 and 2005 (the only measurable period in their pro-forma). So, while the company may have an innovative product that is capable of disrupting an established market, they have yet to prove that their company is capable of executing their strategy to become profitable. Although this is the case for most public companies when they first IPO (after all, they are raising money), it does make the investment significantly more risky, especially when the stock rises over 50% on its first day of trading.