Vmware excites investors
SAN FRANCISCO -- VMware Inc.'s shares soared by 76 percent in their stock market debut Tuesday, reflecting a belief the rapidly growing software maker is on the leading edge of a computing trend that will yield huge profits for years to come.
The run-up marked the biggest one-day gain following an initial public offering of stock so far this year, according to Renaissance Capital's IPOhome.com. The offering by the Palo Alto, Calif.-based company raised $957 million before expenses.
VMware specializes in a process known as "virtualization." It enables a single computer to function like multiple machines, enabling companies to spend less on equipment and energy in their data centers.
The rising demand for virtualization software is expected to generate more than $1 billion in sales for VMware this year, but most analysts believe the biggest moneymaking opportunities still lay ahead.
In a report released Tuesday, Jefferies & Co. analyst Katherine Egbert said VMware appears to be traveling on the same lucrative trajectory as two of the industry's biggest success stories, Microsoft and Oracle. Those software makers boast a combined market value of $364 billion 21 years after their IPOs.
VMware's potential turned its IPO into one of the high-tech industry's most anticipated since online search leader Google went public nearly three years ago.
After the company's investment bankers priced the IPO at $29 late Monday, VMware's finished Tuesday's regular trading at $51. The increase from the IPO price was the best first-day gain since last December when the shares of a smaller high-tech company, Isilon Systems Inc., rose by 78 percent, according to IPOhome.com.
"This is certainly more than just about anyone expected," said Gartner Inc. analyst Tom Bittman. "Maybe the market is a little giddy."
The rapid run-up in VMware's stock left the company with a market value of $19 billion. By comparison, Google ended its first day of trading with a 18 percent increase that left it with a market value of $27 billion.
"There are a lot of smiles around here," Mark Peek, VMware's chief financial officer, said in an interview Tuesday.
That joy also was shared by EMC Corp., a data storage specialist that bought VMware for $602 million in January 2004. The Hopkinton, Mass.-based company that announced in early February to spin off a part of Vmware remains VMware's controlling shareholder with an 87 percent stake currently worth nearly $17 billion.
VMware has 3,000 employees and more than 20,000 customers, including most of the largest U.S. companies. The company's profit more than doubled to $75.3 million during the first half of this year while revenue surged more than 90 percent to $555.5 million.