adimas - Fotolia
Pure Storage received a thumbs-down from traders on its first day as a public company Wednesday, but its rivals hailed its initial public offering (IPO) as a good sign for flash storage systems.
The Pure IPO price of $17 was in the midrange of its target and raised $425 million for the vendor. But the price fell 5.8% to $16.01 by the close of trading on the opening day. That brings the valuation of the Pure IPO to slightly below $3 billion.
Storage insiders say the down trading is more likely because of Pure's heavy losses so far than a knock on the technology. Pure lost $112.7 million despite $158.7 million in revenue for the first six months of 2015, after losing $183.2 million on $174.5 million in revenue for all of 2014.
Despite year-over-year revenue growth of 308% in 2014 and 114% for the most recent quarter, Pure has lost more than $390 million in its short history. That means Pure had to go public to stay afloat, despite more than $530 million in venture capital funding.
Still, Pure's spending has helped it achieve number three market share behind EMC and IBM in the lucrative all-flash array market. That is one reason why its IPO was watched closely in the storage world, and its flash storage rivals see Pure becoming a public company as validation of their technology. The fact that the Pure IPO was completed could open the doors for other storage companies to follow.
Pure is the first storage vendor to go public since Nimble Storage in December of 2013. Nimble's storage systems also rely heavily on flash, although they also include hard disk drives in a hybrid setup. The two storage IPOs before Nimble were all-flash array vendor Violin Memory and server-based flash company Fusion-io, which was acquired by SanDisk in 2014.
"The IPO you're seeing from Pure and the IPO we had is a sign of the significant transition from disk-centric companies to flash-centric companies," Nimble CEO Suresh Vasudevan said.
"The last set of companies that have gone public points to the disruption flash is causing. Fusion-io, Violin, Nimble and Pure show that flash is causing the biggest rethinking of storage architectures in a long, long time."
Nimble's price opened above its target range and rose on its first day of trading but has since fallen below its IPO number. Violin's price dropped 21% on its first day of trading and has continued to fall, although Violin shares rose 9.3% Wednesday after Pure's IPO.
"The Pure Storage IPO reinforces what Violin is hearing from customers, namely that there is a strong appetite by enterprises to leverage flash storage in the data center," Violin CEO Kevin DeNuccio declared in an e-mailed statement. "The industry is also further confirming that next-generation vendors are a key part of the massive disruption occurring in storage."
Other storage startups also closely watched the Pure IPO. Heavily funded all-flash startups SolidFire and Kaminario, as well as hyper-converged vendors Nutanix and SimpliVity, hybrid array company Tintri, object storage startup Scality and disk backup vendor ExaGrid are among those considered IPO candidates over the next year or two.
"Seeing another flash storage company go public with a lofty valuation and fast growing revenues is good for the industry," SolidFire CEO Dave Wright said. "It shows the opportunity that exists for other next-gen storage companies."
While flash rivals see the Pure IPO as good for the industry, they did not follow Pure's strategy of spending heavily to gain quick revenues.
Wright said SolidFire has taken a more measured approach than Pure. While SolidFire's $150 million in funding is significant, it is less than one-third the total funding Pure has used to build its early sales and marketing forces. Wright said SolidFire also sells to larger enterprises and service providers, and that customer base takes longer to cultivate.
"We've definitely taken a little bit of a different route with the company," Wright said. "Our growth rates are in line with theirs, but there are differences as well. Our strategy for building our business is about sustainable growth. We want to grow the business in a way that the top line [revenue] and bottom line [profits] grow over time, and we can tell a story that tells investors there's a clear line of sight to profitability. That's not part of Pure's story today. Obviously, they expect to get there eventually but it's not where they are today."
Nimble had less revenue and smaller losses when it went public in 2013, and Vasudevan has set the end of 2016 as a target for profitability.
"There are two schools of thought," Vasudevan said of building a storage company. "One school says it is a land grab and you want to invest early. That makes sense if you believe storage has a lock-in factor where once a customer chooses a vendor, somebody else cannot easily replace that vendor. That's the approach Pure has taken."
"Our belief is that's not how storage tends to behave. Storage tends to be a decision often made on a project-by-project or workload-by-workload basis. You want to balance top line growth with investment, and a prudent approach would not be to burn cash at a rapid pace as you're generating top line growth," Vasudevan said. "We believe you can achieve [revenue] growth even as you generate cash."
Both approaches will be tested in the coming years -- by Pure, Nimble and other storage startups looking to go public.
Consider a review of your past network decisions
Are flash and disk prices truly equal?
What you need to know for an all-flash purchase