IntelePeer Inc., a developer of cloud technology that helps manage phone calls and e-mail traffic for companies including Sprint Nextel Corp., is going public this week as sales in the industry are poised to triple.
IntelePeer, which leases space at six data centers that help route traffic for phone companies, is selling shares at $9 to $11 apiece today to raise as much as $82.5 million, regulatory filings show. The unprofitable company will use proceeds from the initial public offering to repay loans and for possible for acquisitions and investments.
IntelePeer’s technology helps connect users of newer smartphones to traditional landlines or older mobile phones. That puts the company at an advantage as U.S. carriers upgrade their networks and mobile-phone owners use their devices for more than just voice calls and text messages, according to Melanie Posey, an analyst at IDC. The research firm estimates sales in the industry may climb to $2.1 billion by 2016 from $630 million last year.
Using cloud computing for communications services is “a huge opportunity,” said Colby Synesael, a senior research analyst who covers telecommunications at Cowen & Co. in New York. “Companies that can provide this service will benefit.”
IntelePeer’s revenue has surged more than fivefold since 2006 and totaled $106.2 million in the nine months ended Sept. 30. The company, led by Chief Executive Officer Frank Fawzi, shares about 70 percent of those sales with partners. Sales and marketing costs, meanwhile, are rising.
That may give IntelePeer a lower valuation than some companies in the cloud. The top end of the IPO range values San Mateo, California-based IntelePeer at about 2.8 times sales in the year through Sept. 30. That compares with 3.8 times sales for AboveNet Inc., a fiber-optic network operator, and 6.4 times sales for ServiceSource International Inc., which manages contract renewals for customers via a cloud-based platform.
“If they haven’t made money by now, they should have,” said Francis Gaskins, president of Los Angeles-based IPODesktop.com, which monitors IPOs and doesn’t recommend buying IntelePeer shares.
IntelePeer’s gross margin, or the percentage of sales after the cost of goods sold, is about 29 percent, making it less attractive than more profitable cloud-service providers such as ServiceSource, which went public last year, he said.
IntelePeer sees its competitors as traditional phone companies and specialized communications-service providers for business, according to its prospectus. By that measure, IntelePeer would command a higher valuation. The median for the S&P 500 Telecommunication Services Index is 1 times sales, while the Russell 2000 Technology Index’s is 1.7.
The company’s two largest customers are Sprint, the third- biggest U.S. wireless carrier, and Qwest Communications International Inc., acquired by CenturyLink Inc. last year. Together they accounted for about a third of IntelePeer’s sales in the first nine months of 2011.
The company is selling 7.5 million shares, excluding the over-allotment option. At the top end of the IPO price range, IntelePeer would have a market value of about $378.4 million. JPMorgan Chase & Co., Deutsche Bank AG and Barclays Plc are leading the IPO for IntelePeer, which will trade on the Nasdaq Stock Market starting tomorrow under the symbol PEER.
Scott VanSickle, a spokesman for IntelePeer, declined to comment on the IPO.
IntelePeer is among more than a dozen companies that have scheduled U.S. IPOs in the next three weeks as stock market swings decline. The VIX index measuring volatility has fallen about 45 percent since Nov. 25 and is near a six-month low.
Still, investors may be more demanding as 55 percent of last year’s U.S. IPOs are trading below their offer prices. That may prompt investors to demand better value from companies like IntelePeer, said IPODesktop.com’s Gaskins.
“It’s just a question of pricing,” he said. “Investors are more careful now in their analysis of companies than last April, when the stock market peaked.”