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Pivotal Software’s IPO Debut a Victim of Freaky Friday

Pivotal Software (PVTL) was sideswiped by a funky day to debut on Wall Street, proving again that even the best-laid plans don't always pan out.

On Friday, a day when shares of Apple (AAPL), Microsoft (MSFT), Intel (INTC), and other tech stocks were filleted, Pivotal's first day of trading was modest: Its shares rose 3% to $15.46. (Its opening range was $15.11 to $16.80.)

The cloud-computing's market capitalization of $3.9 billion after Day One gave it a valuation roughly twice that of Zuora (ZUO), the business-software company that went public earlier in April but only a third of file-hosting service Dropbox (DBX), which went public in March.

Pivotal didn't benefit from at least a 20% pop in early-trading action, as those stocks and other recent software IPOs have.

"We're not focusing on the stock price the first day, but our long-term plan," Pivotal Chief Executive Officer Rob Mee tells Barron's.

Patience has been a virtue for Pivotal, a San Francisco-based company whose origins date to 1989, when it got its start as Pivotal Labs. The current version of Pivotal was created in 2013, when EMC -- which acquired Pivotal in 2012 -- spun it out. Dell Technologies and EMC merged in a $67 billion deal in 2016.

As a result, Dell has a 70% economic interest and 96% voting control due to supervoting stock, Barron's Andrew Bary points out.

Of course, Pivotal's muted IPO debut could have something to do with its financials, though they are improving.


Pivotal reported an operating loss of $168.3 million on revenue of $509.4 million last year, compared with a $226.5 million loss on revenue of $416.3 million a year earlier.

Mee, echoing a presentation on RetailRoadshow, underlined "high-growth mode" for the company's subscription revenue. It soared 73% to $259 million last year and makes up more than half of total sales. The company foresees more of a shift to the subscription model in subsequent quarters and away from services, he says.

There could be another upside for investors: Speculation that Pivotal Software may be an attractive acquisition target.

High valuations in the software sector -- regardless of the company's profitability -- have been a carrot for prospective suitors. (CRM) this year acquired an unprofitable MuleSoft (MULE) for $6.5 billion, or about 16 times its projected 2018 revenue.

The takeaway for investors? Extenuating circumstances can overshadow an IPO. But in a market where unprofitable software companies are being gobbled up after going public, there is a silver lining.


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