While not as spectacular as Riverbed's (Nasdaq: RVBD ) 57% surge, the IPO of software company CommVault (Nasdaq: CVLT ) was certainly a success. The stock price spiked 17% to $17 on its debut last Friday. But while this is a strong company in a growth market, there are fierce competitors and the stock's valuation is at lofty levels.
Back in the late 1990s, the management of CommVault asked some basic questions: What if data exploded by a factor of a million? In such a world, what kinds of technologies would customers need?
It was smart thinking, and as a result, CommVault has devoted tremendous resources to building cutting-edge technologies to help companies manage data. Its flagship product, QiNetix, helps with such things as data backup, archiving, and recovery; replication of data; usage tracking and data classification; and troubleshooting.
The software is definitely in high demand. Annual sales, as of the first quarter of 2006, were $62.4 million, up from the prior year's $49.5 million. Net income was $5 million, which compares to a loss of $5.1 million in the prior year.
CommVault's customer list stands at roughly 4,300 names. Some of its well-known clients include Ace Hardware Corporation, Centex Homes, Newell Rubbermaid (NYSE: NWL ) and even the United Kingdom's Department of International Development.
However, the IPO is not without some controversy. Prior to the offering, CS First Boston owned 63% of CommVault and was also the underwriter on the deal. Moreover, the investment bank -- as well as its affiliates -- sold 4.9 million shares in the offering.
This is not common and does pose conflict of interest issues. However, investors appear to be unfazed by this.
There is also the company's intense competition, from companies such as EMC (NYSE: EMC ) , CA, Hewlett-Packard (NYSE: HPQ ) , IBM (NYSE: IBM ) and Symantec (Nasdaq: SYMC ) .
But according to its prospectus, CommVault believes its offering is "unique" because it is built on a common software foundation. The competition, on the other hand, has pieced together solutions with a myriad of acquisitions.
By having a common architecture, CommVault has been able to better scale its product -- such as by adding new features -- as well as get cost efficiencies.
Unfortunately for investors, the stock is at a frothy valuation, which is not unusual for a hot tech IPO. At its $700 million market cap, the company is selling at seven times trailing revenues and 141 times earnings. Basically, at such levels, this stock is really for momentum players, not long-term investors.
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Fool contributor Tom Taulli does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
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