Is Ramp Networks Ramping Up?

Shares of Juniper Networks’ gravity-defying stock have begun heading
back toward Earth in recent days, a decline that has been overdue.

(JNPR) stock was selling at $186.63 early Thursday afternoon, down 22%
from its Aug. 23 close of $227. The stock also was off 10% from
Tuesday’s closing price of $205, as investors began profit-taking before
a recently announced secondary offering of 5 million common shares
dilutes their holdings.

All told, though, it’s been a fantastic after-market ride for Juniper
and its early investors since the company’s June 25 IPO, when the
company offered shares at $34 and saw their value zoom to nearly $100
apiece by day’s end. In a season when numerous networking and
infrastructure IPOs (Rhythms NetConnections (RHTM), Efficient Networks (EFNT), Redback
Networks (RBAK) have soared, Juniper has achieved the highest altitude and
longest hang-time.

Ramp Networks is another networking company that launched an IPO in
June, offering 4 million shares at $11 each. But Ramp’s stock has had a
much rougher going, closing at $16.75 on its first day of trading June
22 and then stumbling into July before a brief run-up that took it has
high as $36.13. By Aug. 10, however, RAMP was below its first-day close,
ending the day at $14.56.

Since then RAMP has slowly begun another climb, trading early Thursday
afternoon at $20.88, a 43% gain in 16 trading days.

While Juniper and Ramp both sell Internet routers, their target markets
are entirely different. Juniper’s high-end hardware and software is
intended for use by large customers such as ISPs trying to handle huge
amounts of Internet traffic. Ramp’s product is geared toward the SOHO
(small office/home office) market.

The company’s WebRamp router allows multiple Internet users to share a
‘Net connection using a number of delivery technologies, including
analog phone lines, cable modems, digital subscriber lines (DSL) and

Ramp is betting on two things: Continued growth in the SOHO market and
the adoption of broadband access technologies by that market. Both seem
like reasonable bets. Research firm Access Media International projects
the number of small businesses using shared Internet access to rise from
400,000 in 1998 to 1.3 million by next year, according to Ramp S-1
filing from last spring.

Meanwhile, DSL and cable are in a race for market dominance. WebRamp’s
flexibility means it can work with customers who choose either.

After a slow Q1 (47% sales growth over Q1 ’98), Ramp saw Q2 revenue hit
$4.53 million, or 144% over the year-ago quarter. With $8.4 million in
sales through June, Ramp is close to equaling 1998’s total of $9.9
million and could end the current year with $20 million in revenue.

In the market where Ramp competes, price is critical, and smaller
companies such as Ramp usually get squeezed on their margins by larger
vendors such as 3Com, Lucent, Nortel and Cisco. So far that hasn’t
happened; gross margin rose from 25% in the first six months of 1998 to
36% through Q2 ’99.

With a market cap of $416 million, Ramp is trading at about 29 times the
last four quarters’ revenue. Compared to Juniper’s price/sales multipleof 135, that doesn’t look like a bad deal.

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