Business Blog: Hoover’s Business Insight Zone

It soared on the Hoover’s Index, it’s our Company of the Day today, and now it’s an IPO darling — what more could VMware ask for? Here are some tidbits from the NYT’s coverage:

VMware’s initial public offering raised about $1.1 billion, making it the largest I.P.O. by a technology company since Google’s in 2004. Defying a weak market, the shares closed the day at $51, or $22 higher than the offering price of $29.

The company hopes that the enthusiastic first-day reception in the stock market will also have strategic and marketing benefits. [...]

The offering is also an “über-marketing event,” [CEO] Ms. Greene said, which should widen the audience for the company’s software beyond large corporations.

It’s not hard to figure out the appeal of a profitable, growing company whose products save its users a bundle of money. Plus VMware’s market share within its niche — which might be as high as 85% — makes for a handy barrier to entry for potential competitors. For a summary on VMware and what it does, you can read my Company of the Day article, appended here for your convenience:

VMware is hardly a household name among consumers, but its IPO this week has become a focal point for high-tech investors. The company is a heavyweight in virtualization software, which allows big data centers to run more effectively by reapportioning software applications across multiple servers. This means that VMware’s customers can use less hardware to get the same amount of computing power. The company’s success in helping users save money this way appealed to EMC, the big computer storage company that bought VMware for $625 million in 2004. Given the valuation placed on VMware’s IPO, the company is worth easily ten times that much now. It’s little wonder that this offering is seen as likely the most important technology IPO of 2007.

Considering the frenzy earlier this summer for the opaque and expensive IPO of Blackstone, it’s easy to understand why investors would be excited about VMware. Founded in 1998, the company has a relatively long operating history for a software company going public. It has a powerful backer in EMC. It brought in more than $700 million in revenue in 2006, and will likely beat that number by a mile this year. VMware also enjoys a dominant position in its market, with some estimates putting its market share for virtualization software above 80%. And given that the costs of maintaining and powering servers are likely to increase, that market is likely primed to grow, especially since only a tiny fraction of all the servers that might benefit from virtualization software now employ it. Some recent IPOs, for example Orbitz Worldwide’s, seemed to go forward for their convenience of their owners rather than because the companies were actually ready to go public. But all signals for VMware suggest that it really is ready for prime time.

~