CoSine stock, which was sold to institutional investors at $23, opened for public trading this morning at $68, climbed as high as $71 and closed at $63.06, a gain of 174 percent.
Cosine makes networking devices that let Internet service providers and network operators add new telecommunications services, such as a secure connection, a virtual private network (VPNs) and voice services.
CoSine raised $230 million yesterday through the sale of 10 million shares, or a 10 percent stake, at $23 each, $1 above its $20 to $22 price range. The company already raised its price range two times, from an initial range of $13 to $15, up to $20 to $22. Goldman Sachs was the lead underwriter for the sale.
"I think despite some of the uncertainty in the broader market, investors are still interested in selected deals right now and this is one of them," said Paul Bard, an analyst with Renaissance Capital IPO Plus Aftermarket Fund."This is an infrastructure play which continues to be strong."
Redwood City, Calif.-based CoSine joins a highly competitive market dominated by such giants as Cisco Systems, Nortel Networks and Lucent Technologies. Unlike these formidable companies, which provide a variety of networking components, CoSine offers a more specific and unique product.
CoSine's advantage lies in its offering of additional networking capabilities, such as firewalls and virtual private networks (VPNs), Bard said.
"What really makes their solution unique is the service-provider customer doesn't need to go in and install the equipment software and hardware," said Bard. "The service provider can get that same branch office hooked into the network with a flip of a switch from the central office."
Despite its strong product, CoSine has posted considerable losses. The company lost $59 million on $11 million in revenue for the six months ended June 30, 2000. But the balance sheet could improve dramatically, Bard said.
"Their revenues can grow very quickly with just signing a few new agreements," Bard said. CoSine's current customers include such big players as Qwest Communications International and Broadband Office.
Qwest and Broadband Office both hold warrants to purchase significant stakes in CoSine in exchange for their business. The practice, which is increasingly common in the communications business as new network equipment makers struggle to gain customers, has drawn the attention of federal regulators. Some critics of the idea contend that the IPOs of start-up gear makers are boosted by their big name customers, which stand to profit handily from the stock offerings.
CoSine has also been touted for its management team, a group of executives from some of the best-known technology companies. Chief executive Dean E.G. Hamilton comes from Ascend Communications; executive vice president of global services Bill Ferone worked at Nortel Networks; and chief operating officer Steve Goggiano comes from SGI.
"They have a team of executives that are really very experienced in the equipment field," Bard said.