Violin Memory should serve to refresh investors’ own memories of the dangers of technology IPO froth. You know what that means — among the few gems going public, you have many more dogs that are pushed out ahead of time, unprofitable, and then plunge and create bad vibes all around.
Violin’s miserable post-IPO performance, in which it has lost 70% of its value since the IPO in late September, combined with executive defections and investor lawsuits, gives a glimpse of the dark side of the Silicon Valley/Wall St. tech-industrial complex, in which questionable deals are foisted upon the grandmas around the world.
This is an interesting development, given that Nimble Storage is going public this week. Now, sources all tell me that Nimble is a much better company with Violin — and it ceratainly has a better software. Nimble has actually been raising its price range.
But Violin’s terrible post-IPO performance isn’t exactly a positive for the flash sector. I think it says more about the irresponsibility that still exists in the machinery of taking technology companies public. Remember, my takeaway from the 1999-2000, which I survived covering dozens of IPOs for Red Herring, is that unprofitable tech companies should simply not go public.
Violin is a great case for that rule. Let’s take a look at the Violin chronology, shall we?
- Sept. 27th: Violin Memory (VMEM) goes public, at a price of $9 per share. It immediately plummets 17% out of the gate. Bad sign.
- Nov. 21: In its first report after its IPO, the company announces a .85 per share loss, twice the analyst estimates. Share open down 50%. Oops. AllThingsD points out that after this dismal report, the company’s market cap is $491 million, half its last private-market venture-capital valuation of $850 million. Amazing point.
- Nov. 22. JP Morgan, a lead underwriter of the Violin Memory IPO, downgrades the stock and lowers its price target to $4.50 from $6. Are you kidding me? The investment bank to pumped the company for an IPO at $9 now has a price target that is 50% lower, only three months later? This was disgraceful.
- Dec. 11: Business Insider gets the scoop that Jonathan Goldrick, Violin’s CTO, has left the company. The story says that CEO Don Basile’s job may also be on the rocks.
- Now: Violin is trading at $2.79, 70% below it’s IPO price — just three months ago. Since the the disastrous Nov. 21 earnings tatement, what have we heard from the company? De Nada. They’ve said absolutely nothing. I’ve put a call in this morning let’s see what they say.
This collapse is absolutely pathetic, given how fast it came just after the IPO. It makes the IPO look like a giant money-grab, especially since the company went public without being profitable.
This deal is going to tarnish the flash memory sector — and those involved in this particular deal — for a while. Although flash technology is certainly promising, it is a low-margin (or negative margin) hardware business for now, a fact that Violin has confirmed.
Investors are going to be a lot more circumspect about flash deals going forward. It will be interesting to see how Nimble’s IPO performs this week (expected Friday) and whether investors perceive Violin’s collapse as company specific. So far, it looks like they will.