Largest venture-backed technology company to test markets this year jumps 130%
Christopher Galluzzo
Shares of Nutanix Inc. closed 130% above the issue price Friday, marking the biggest first-day pop after a technology company’s initial public offering since 2014.
The California-based company, which pioneered a technology for businesses called hyperconvergence, priced its offering higher than its elevated range at $16 a shareto raise about $238 million. The company’s stock’s performance Friday surpassedthe June performance of Twilio Inc. TWLO, -6.34% and proved wrong earlier worries about a “down round” from its $2 billion private valuation in private financing.
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Dheeraj Pandey, chief executive of Nutanix NTNX, +131.25% , said Friday in an interview with MarketWatch that he felt the stock’s first-day performance showed investor appetite for new companies, and underscored the need for hyper - converged systems, which combine computing and storage.
“Obviously, there’s a pent-up demand for a good story,” Pandey said.
There have been 14 initial public offerings from tech companies this year, with seven coming this quarter, according to Renaissance Capital, a manager of IPO-focused ETFs. Nutanix marks the largest venture-backed technology company to test the markets this year and the second largest offering of the year overall, Renaissance said.
It was the best first-day stock pop for a tech company since Castlight Health Inc. gained 149% CSLT, +0.97% in 2014 and the largest overall since Seres TherapeuticsMCRB, -3.08% gained 186% in June 2015.
Nutanix initially set a price range of $11 to $13 and then upped the range to $13 to $15, which still could have put it in danger of having a market capitalization lower than the $2 billion valuation it received in a final round of venture funding. In pricing at $16, the company avoided that, though Renaissance Analyst Matthew Kennedy said that pricing was still likely conservative.
As a rare unicorn to face the public markets, alongside Twilio, Kennedy added that the price may have been necessary to make investors comfortable with tech’s soaring private valuations.
“This should motivate the unicorn crowd to move forward,” Kennedy said.
The company was backed by venture investors LightSpeed Venture Partners, which owned the biggest stake before the IPO, followed by Khosla Ventures, Blumberg Capital II and Riverwood Capital Partners.
Nutanix stands out as a leader in the hyperconvergence field, which consolidates storage and servers for enterprises, said Arun Chandrasekaran, an analyst at Gartner Inc. Nutanix has a technology advantage for being a first mover, he said, but there has been an increasing amount of competition from large companies such as Dell and Hewlett Packard Enterprise HPE, -0.66% in the past two years.
Customers could gravitate toward the larger providers because they may already be using them for other business, he said. Nutanix’s customers include Best Buy Co.BBY, +2.06% , Kellogg Co. K, +0.27% and Nasdaq Inc. NDAQ, +0.09%
Still, Nutanix isn’t banking entirely on hyperconvergence. Pandey said they plan to make “box companies vanish” and work on development in areas such as automation, machine learning, software and security.
“The end goal is to make data centers human-less,” Pandey said.
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