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A coat less glossy

29 September 2015 By Robert Cyran

Pure Storage was valued at more than $3 billion last year after it raised $225 million from the likes of T. Rowe Price, Tiger Global and existing investors. Its backers were entranced by its fast growth. But losses and competition are mounting, and investors’ sharper focus on risk threatens a down round now that the company is going public.

About $24 billion of storage gear and software was purchased last year by businesses and data centers, according to researcher IDC. Over the past decade, installed capacity has doubled every 18 months. However, costs are falling almost as rapidly, so in dollar terms the market is expanding at a modest 3 percent or so every year.

While giants like EMC and NetApp mastered making disk drives that store more information at lower cost, newer entrants offered solid-state flash drives. Flash is faster, uses less energy and tends to be more reliable – but it’s also more expensive. Pure Storage’s twist was to combine cheap consumer-grade flash memory with software to make something as reliable as rivals’ more expensive hardware.

Customers like the result. Sales nearly quadrupled in the year to January, reaching $174 million. Previous investors saw this happening and awarded Pure Storage an outsized valuation – at least 17 times that revenue – in the hope it would become the next IT giant. The company fueled the fire with talk of how storage was just the start of its ambitions.

But there’s growing unease about speculative stories, and markets have turned more volatile. The realities are that Pure Storage burned $66 million on operations and equipment in the six months to July and had only $128 million of cash at the end of the period. It needs to raise more.

At the top of the indicated range for its initial public offering, Pure Storage would be worth $3.3 billion. But excluding $450 million of new cash to be raised, the value falls below last year’s level. It wouldn’t be the first so-called unicorn to step down in value going public. Two other companies worth more than $ 1 billion, Box and Hortonworks, had the same experience within the past year. Yet each unicorn that loses magic in an IPO may spook Silicon Valley a bit more.


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