IPO Outlook: API-Focused Software Tech Company Apigee Is A Silent Growth Story

Apigee Corp APIC, the rapidly growing software developer based in San Jose, plans its $105 million initial public offering Friday, April 24.

The company expects to price its shares between $16 and $18. Pricing at the midpoint would value Apigee at $495 million in terms of market cap. The company will trade on the NASDAQ under the ticker APIC.

What Is Apigee?

Apigee is a leader in providing software to companies to help create and manage their APIs (application program interface). An API is software that links a company's data, content and services to developers. The developers then use the APIs to build new apps to allow customers to connect with the company through mobile and web.

For example, when someone uses the Facebook Inc FB app on their phone, APIs are what drive that interaction. Apigee's tools to supporta nd maintain the companies' APIs provide speed and safety from cyber attacks. "We're basically like a content delivery network for APIs," Apigee CEO Chet Kapoor said to The Register.

As the first API company to go public, Apigee faces a unique opportunity amid the software driven changes occurring in the digital age.

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Financials

Apigee has taken off over the last few years. Revenue grew from $27.6 million in 2012 to $52.7 million in 2014 – a growth of 90.9 percent. In a 2013 competition hosted by Deloitte, Apigee took fifth place for 17,384 percent revenue growth from 2009 to 2013.

The company generates the majority of its revenue from software licensing and subscription fees to access its software in the cloud. Other sources of revenue include maintenance and support services and consulting fees. Despite the fast-growing revenue, the company takes a big hit in operating expenses resulting in mounting losses.

The company's biggest expenses are SG&A and R&D. SG&A expenses spiked to $83.7 million in 2014, from $46.5 million in 2013. Adding new staff and making investments in sales and marketing to grow revenue is the main reason for the 80 percent increase. R&D increased from $16.8 million in 2013 to $22.7 million in 2014, an increase of 11 percent. As the company continues to grow, it expects to see this cost increase, but over the long term it may come down.

Apigee's losses have grown 634 percent from $8.3 million in 2012 to $60.8 million in 2014. This is not awful for a software tech company, pre-IPO. Consider Box inc BOX, which had a successful $175 million IPO in January earlier this year. Pre-IPO, Box's net income was down 235 percent from $50.3 million in 2011, to $168.9 million in 2014.

Unprecedented Timing

Disruptive companies such as Uber and Airbnb have created business models and new technological advances that are changing how their industries operate.

Apigee is filling the need in its respective industry. As the hotel industry faces tough competition from Airbnb, it has recognized the need to provide more value to its guests. It has accomplished this through mobile apps, analytics and adding smart devices in hotel rooms. All of these are made possible through the use of APIs. As the world and business become increasingly more digital, Apigee has a unique opportunity to serve these companies by creating and managing their APIs to better improve the customer experience and bottom line. Apigee also assists companies in the analysis of their data from the APIs.

Related Link: Apigee Working With Morgan Stanley, JPMorgan And Credit Suisse For IPO, According To Sources -Reuters

The software company already works with companies, such as:

• Walgreens Boots Alliance Inc WAGWBA
• AT&T Inc. T
• eBay Inc EBAY
• Citrix Systems, Inc. CTXS
• Adobe Systems Incorporated ADBE

Competitors of Apigee, such as Mashery and Layer7 have been acquired recently. Mashery by Intel Corporation INTC and Layer7 by CA, Inc. CA.

Apigee Acquisition History

Apigee has made some acquisitions of its own, such as InsightOne, an analytics firm it purchased last year. Other companies entering the arena include MuleSoft and behemoths International Business Machines Corp. IBM and Oracle Corporation ORCL that have begun to see the opportunity with APIs.

Apigee has received funding from strong backers such as Blackrock, Accenture, Juniper Networks, hedge fund Pine River, mutual fund Wellington and VC firms Bay Partners and Third Point Ventures.

Looking Ahead: Pricing Info

Apigee is positioning itself to dominate a highly competitive digital market. Renaissance Capital notes, "High-growth enterprise SaaS companies have historically provided improved first-day returns." The six tech IPOs of 2015 have been trading below their first day close. For example, Box, which had its IPO in late January, had a 65 percent first day pop.

Apigee plans to issue 5.1 million shares on the NASDAQ at a price target of $16 to $18 per share under the ticker APIC. Offering underwriters include Morgan Stanley, JPMorgan and Credit Suisse.

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Other Offerings

Thursday, April 23

National Storage Affiliates Trust NSA: 20 million shares expect to price between $15 and $17 per share though Jeffries, Morgan Stanley and Wells Fargo.

Friday, April 24

Viking Therapeutics Inc VKTX: 2.5 million shares expect to price between $7 and $9 per share through Laidlaw & Company and Feltl and Company, Inc.

Apigee Corp APIC: 5.1 million shares expect to price between $16 and $18 per share through Morgan Stanley, JPMorgan and Credit Suisse.

Disclosure: At the time of this writing, the author holds no positions in any above mentioned security. At any moment, without notice, the author may initiate any position, long or short.

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