IPO Gold

Last Friday, Quest Software Inc. (QSFT)
surged 33 to 47 on its IPO. The company develops software that allows for
the efficient delivery of information across corporate enterprise

Yes, it is not very exciting stuff, but it is critical for companies that
want to remain competitive.

This week, there is a similar company going public,
SilverStream Software Inc. The
company develops a product called the Application Server.

The lead underwriter is Morgan Stanley Dean Witter and the proposed ticker
symbol is SSSW. The company plans to issue 3 million shares at a $13-$15
price range.

Here’s a look at the valuation metrics (assuming the IPO is priced at $15):



pro forma IPO


Shares offered


Price target/actual




Shares out



IPO market cap


less working cap


less LTD


Enterprise value


1999 Revenues


1999 Losses


Annualized rev.





Revenue multiple


Rev. multiple


The evolution of corporate information systems has gone through three
stages: mainframes, client-server and, as of now, Web-based computing.
With mainframes, companies were able to centralize information, but access
was limited. As for client-server, employees had access (via PCs), but
there was a loss of centralization.

Web-based computing solves the problem — by allowing centralization and
widespread access. Thus, not only are employees connected, but so are
vendors, partners and even customers.

Basically, SilverStream’s Application Server helps companies build and
manage scalable Web-based computing applications.

The user-interface (known as the presentation layer) is easy to use,
supporting HTML and Java UIs. Next, there is the Business Logic Layer.
Here, the business logic can be programmed easily into the application
(such as tax tables, discounts, freight, credit limits). The business
logic is held within objects that can be reused in other applications. Then
there is the Data Access Layer; it provides seamless connections with a
myriad of data sources, such as Oracle, SQL Server and Informix. Finally,
there are a rich set of development tools, like visual designers and
content management programs.

Estimates show that the application server market is expected to grow from
$412 million in 1998 to $2.2 billion in 2002.

The company is losing money, though, with an accumulated deficit of $31.5

But the company has been growing its revenue at furious pace, going from
$1.7 million for the first six months of 1998 to $6.1 million in the first
six months of 1999. The company has also been successful selling its
software overseas ($1.9 million this year).

Revenues for Silverstream come from two main sources: software licenses
and consulting services (the software is highly complex and requires lots
of TLC).

Critical to any new technology is adoption. SilverStream has not only
built powerful technology, but many companies are using it – over 500,
which include such heavies as Disney, Federal Express, Pfizer, and MCI

Yes, for SilverStream, it may be a stream of gold.

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