Proofpoint Shares Jump 31% In IPO

Shares of security software specialist Proofpoint (Nasdaq: PFPT) jumped as much as 31 percent in the first few minutes of trading after their initial public offering.

Proofpoint was at $13.90, up 7 percent, after the initial surge. They closed at $14.10, up $1.10 or 8.3 percent.

The Sunnyvale, Calif., company priced its 6.33 million-share IPO at $13 late Thursday in an underwriting co-managed by Credit Suisse and Deutsche Bank Securities. On a preliminary basis, the company's market value is about $415 million.

Headed by CEO Gary Steele, 49, Proofpoint specializes in developing cloud-based security for internal communications such as email and instant-messaging (IM) which need to be secured as well as preserved for legal and corporate purposes.

We want to drive the growth and cash flow, Steele said in an interview from Nasdaq headquarters in New York. We want to build on our history of innovation.

That means Proofpoint expects revenue to keep growing quickly, with profitabilty coming later. The company wants to tap some of the proceeds from the IPO for tuck-in acquisitions of other security providers. Steele declined to name targets.

Last year, the company acquired NextPage, a Utah-based specialist in tracking documents,That was a good fit for us and we're always looking for more.

Clients: Bank of America, Princeton, Houston

Major Proofpoint clients include Bank of America (NYSE: BAC), the No. 2 bank, and leading insurance company AON (NYSE: AON), the U.S. Department of Agriculture, Princeton University and the Houston city government.

Besides competing against traditional software security providers such as Symantec (SYMC), McAfee, now a division of Intel (Nasdaq: INTC), the No. 1 chipmaker, and CheckPoint Software Technologies (Nasdaq: CHKP), Proofpoint also competes against Cisco Systems (Nasdaq: CSCO), International Business Machines Corp. (NYSE: IBM) and other leaders including EMC (NYSE: EMC), which acquired security specialist RSA.

In the interview, Steele said Proofpoint's major rivals are Symantec and McAfee.The company already has 15 patents covering security, data and encryption and plans to apply for more. It doesn't plan to license them to others for royalties, he said.

As well, the software is scalable so that it can handle the management, protection and archiving of messaging from smartphones and tablets, a Big Data problem currently growing for major companies.

Splink Phenomenon

Proofpoint's IPO experience somewhat matches Thursday's IPO for Splunk (Nasdaq: SPLK), a data analytics specialist whose shares rocketed all day, more than doubling from their IPO price. They closed up another 72 cents at $36.20.

Proofpoint hasn't yet reported a profit but appears to be approaching that phase. For 2011, it reported a net loss of $20.1 million, or $5.03 a share, about the same as 2010, as revenue rose 26 percent to $81.78 million.

Steele said the company derived about 20 percent of revenue from Europe, a market where it wants to expand.

Its performance and products attracted attention from market specialists such as Gartner (NYSE: IT), which assigned it to its magic quadrant of technology companies. By custom, these companies do well in an IPO and often become targets of bigger enterprises eager for their technology.

The company, founded in 2002, raised venture capital from blue-chip companies including Mohr Davidow Partners and Benchmark Capital. Steele had been CEO of Portera Software, acquired by Gores Technology Group in 2002, and previously worked at Sybase and Sun Microsystems.