A Dangerous IPO

As 2007 comes to a close, wrapping up a healthy year for initial public offerings, another firm has filed to test the public markets. This new entrant is mobile-data-solutions developer Danger, a Palo Alto firm that designs software embedded on mobile devices popular with young demographics. No details of the pricing of the IPO were given, though the firm does hope to raise roughly $100 million and use $7.2 million to pay off debt.

Danger builds the software and mobile data services integrated into the popular Sidekick devices sold by Deutsche Telekom's (NYSE: DT  ) T-Mobile in the U.S., as well as similar devices in Australia and Europe. Like Research In Motion (Nasdaq: RIMM  ) , Danger earns revenue from each subscriber it serves. Unlike RIM, though, Danger does not manufacture and sell the device -- partners Motorola (NYSE: MOT  ) and Sharp actually build the hardware platform.

The company may prove to be a minefield for investors, though. While it earned $56.4 million in revenue in the most recent 12 months, the company shows $11.8 million in operating losses.

There's more to be concerned about with Danger than just financials, though. The company specifically mentioned the Google-led (Nasdaq: GOOG  ) Open Handset Alliance as a risk to its business. T-Mobile -- Danger's largest source of revenue -- and Motorola are both founding members of the alliance with Google, and both have expressed interest in adopting an open-source mobile software platform. Verizon Wireless -- a joint venture between Verizon Communications (NYSE: VZ  ) and Vodafone (NYSE: VOD  ) -- also just announced it will open its network to non-proprietary software applications and operating systems for mobile devices.

These future uncertainties are in addition to current competition from RIM, which is making a big push into Danger's consumer space. Even Nokia (NYSE: NOK  ) is now venturing into offering content with its already popular line of media-capable wireless devices.

Taken together, Danger will have to spend a lot of money to just keep up with the intense competition in the mobile data market. As such, I expect the company to incur substantial losses for at least a few years, and I give it a low probability of success if it chooses to go it alone. Investors beware; the company's name should serve as your warning.

For more Foolishness:

Help us in our goal to give every young person around the globe a financial education! Learn more about the new direction of Foolanthropy, now in its second decade, here.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 557272, ~/Articles/ArticleHandler.aspx, 11/26/2014 8:53:48 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement