With market volatility and a shaky economy, the initial public offering market has been rough lately. Yet, telecom software provider BroadSoft (BSFT) was able to pull off an IPO today.
But it was not easy. BroadSoft issued 7.5 million shares at $9, which was at the low end of its $9 to $11 range. And 2.45 million of these shares came from existing holders.
So far in today's trading, shares of BroadSoft are off 10% to $8.05.
An Early Telecom Technology Provider
Founded in 1998, BroadSoft was an early provider of technologies to help fixed-line, mobile and cable operators deliver additional services like PBXs, video-calling, instant-messaging, text-messaging and so on. The company accomplished this with sophisticated server software called BroadWorks. A report from Infonetics Research shows that BroadSoft has roughly 33% of the market.
With BroadWorks, customers can quickly offer services that generate high-margin revenues, and help reduce subscriber churn. These value-added services are critical to staying competitive. Besides, BroadWorks is fairly cost-effective as there is little need to build-out new infrastructure.
BroadSoft currently works with more than 425 service providers in over 65 countries -- including 15 of the top 25 telecom companies. BroadSoft continues to innovate its platform. In addition, it operates on a variety of common networks and has a highly scalable architecture (supporting hundreds of millions of subscribers).
Growth Should Continue, But IPO Market "in a Funk"
Even with the global recession, BroadSoft has continued to grow its revenues. From 2008 to 2009, revenues went from $61.8 million to $68.8 million. What's more, for the first quarter of this year, revenues increased from $13.6 million to $17.8 million.
And the growth should continue. Enterprises are looking for cost-effective PBXs that leverage the Internet (the market was $7.7 billion last year). As for consumers, they want cutting-edge communications and seamless integration with their mobile devices.
With such a promising future, why are investors skeptical of BroadSoft? First of all, the company must continue to make large investments to remain competitive. At the same time, there could be pricing pressures.
However, these obstacles are normal in the tech world -- the problem is that the IPO market remains in a funk and will probably take much more time to get back on track.
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