Aruba Networks rose as much as 29% in its market debut Tuesday, boosted by the computer network gear maker's growing customer base and strong growth prospects despite a lack of profits.
After a strong start in the initial public offering market this year, a number of technology IPOs have failed to generate share price gains due in large part to concerns about profitability.
The company is not expected to break even until 2008, but its history of gains within the sector, even while competing with industry heavyweight Cisco Systems makes Aruba an attractive bet, said Scott Sweet, managing director
for IPO research firm IPOboutique.com.
"Despite the company losing money, investors are focusing on the sales growth year over year," Sweet said.
The company narrowed its losses to $12 million in 2006 from $32.6 million in 2005, while increasing revenue to $72.5 million from $12 million.
Aruba's equipment provides secure access to data, voice and video applications and links desktop and laptop computers as well as other mobile devices.
Customers include Google , Ohio State University, Pu Dong International Airport in Shanghai and the U.S. Air Force, according to an amended filing with the U.S. Securities and Exchange Commission.
Shares of Aruba, which makes wireless networking hardware, opened up 27% at $14 before climbing to a session high of $14.22 on the Nasdaq.
The Sunnyvale, California-based company on Monday raised $88 million with an offering of 8 million shares at $11 a piece, exceeding a forecast range of $8 to $10.
The offering price gave the company an initial market capitalization of about $827 million.
The company also sold 388,888 shares to Microsoft in a private placement upon completion of the offering, according to the filing.
Aruba joins a growing list of offerings from computer networking companies in the past year including Acme Packet and Riverbed Technology. Acme and Riverbed offered shares in October and September, respectively, and posted two of the biggest first-day gains in 2006.
Aruba plans to use net proceeds from the offering of an almost 11% stake for working capital, expansion of its sales and support teams, research and development, and general corporate purposes, according to the filing.
Underwriters, led by Goldman Sachs and Lehman Brothers, have the option to purchase an additional 1.2 million shares to cover overallotments.