This networking company debuted its IPO in March, and it is disrupting processor speed, industry-wide.
A10 Networks (ATEN)
from New Technology Superstars
A10 Networks (ATEN) creates network appliances and software that manage the load on web and network servers to minimize lag and maximize reliability. In other words, if you think of the Internet as a series of tubes, ATEN helps make sure you don’t suffer the inhumanity of waiting for a backup to clear.
ATEN brings a disruptive advantage to market with its advanced 64-bit multi-core processing and cross processor memory sharing architecture. This allows its hardware to more quickly process those incoming requests, so clients need less hardware, resulting in a 2x to 5x price/performance advantage of its competition in the reckoning of Morgan Stanley analysts. As a result, its rapid revenue growth and market share capture should continue over the medium term. During the second half of 2013, ATEN’s revenue grew at a 25% rate vs. 3% for its overall industry.
Morgan Stanley is looking for revenue growth of 30% this year and 27% in 2015, putting the company on a path to hit profitability in 2016. This is being helped by the clearing of an injection related to intellection property with Brocade as well as Cisco’s decision to leave the market for application delivery controllers or ADCs. Cisco held a 33% market share in ADCs as recently as 2008, but that’s down to 3% now, opening the way for A10 as old Cisco customers look to retire obsolete equipment.
Morgan Stanley estimates A10?s total addressable market is worth more than $12 billion currently while the ADC market specifically is worth about $1.7 billion and is set to grow at a 7% annual rate through 2017.
Morgan Stanley is looking for operating cash flow to grow by more than $10 million by the end of the year—padding the $124 million the company raised in its April IPO.
Yet given its growth dynamic, the company is attractively priced, on an enterprise value-to-sales metric, compared to peers like F5, given its higher adoption rate.
Buy a 2% position in A10 Networks, Inc. at a limit order of $12.70 or better. This order is good-till-cancelled. My near-term target is $15.50, but that may go higher once we see the next earnings report. The entry level is $1 below current price because we are going to try to buy at a more advantageous level in the event that shares sell off in the next month. If shares remain firm, I will lift the recommended entry level.
Jon Markman, New Technology Superstars, published by Money and Markets, a Division of Weiss Research, Inc., www.moneyandmarkets.com/services/trading-services/new-technology-superstars, issues@e.moneyandmarkets.com; 1-800-291-8545, June 30, 2014