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Carbonite looking to raise $100m in IPO

Boston data storage firm sees room for growth, but some wonder how much investors will pay

By Hiawatha Bray
Globe Staff / May 13, 2011

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Carbonite Inc., the Boston company that pioneered online computer backup services, yesterday said it intends to go public with a stock offering the company hopes will raise $100 million.

Founder and chief executive David Friend said Carbonite has plenty of room to grow. The company charges consumers $59 a year to back up unlimited amounts of data on personal computers online, a service that has grown in popularity as people store more of their vital data digitally. It says it has more than 1 million individual and small business customers in over 100 countries.

“Obviously we think it’s a very big market,’’ Friend said. “We’ve just scratched the surface so far . . . It’s a big world out there and most of them don’t have online backup.’’

Analysts expressed skepticism about both Carbonite’s future and the price investors will pay for its stock. They noted that the company is not yet profitable, and that bigger, richer firms have found it tough to prosper in online data storage.

According to documents filed with the US Securities and Exchange Commission, Carbonite grew smartly in recent years, despite the recession. Revenues rose from $8.2 million in 2008 to $38.6 million last year. But the company posted a 2010 net loss of $25.8 million, mainly due to the high cost of advertising its product to consumers.

David Menlow, president of IPOfinancial.com in Millburn, N.J., an independent research firm for the IPO market, said Carbonite’s losses and high costs should worry potential investors. “Unless they’re going to show some signs of making serious improvements in their revenue curve and shrinking their losses, I think the market is going to have a tepid reaction to this,’’ Menlow said.

Carbonite faces competition in online backup from Internet security companies Symantec Corp. and McAfee, which was bought last year by giant chip maker Intel Corp. But its chief rival is the Mozy online backup service from data storage titan EMC Corp., which is based in Hopkinton. Like Carbonite, Mozy originally offered unlimited data backups to consumers for a flat monthly fee. In February, however, the company began setting limits on storage because consumers now have lots more data to back up — mainly photos, videos, and music files.

Another local information giant, document storage company Iron Mountain in Boston, launched a foray into online services a decade ago. But last month, it said it planned to abandon the market because it failed to live up to expectations.

Steve Duplessie, senior analyst at Enterprise Strategy Group in Milford, said that Iron Mountain’s woes suggest that it won’t be easy for Carbonite to make money. “Iron Mountain is a giant global brand that finds this business not profitable enough to stay directly active in,’’ said Duplessie, “so how can Carbonite?’’

In its SEC filing, Carbonite noted that the price of storing data has plummeted in recent years, and continues to fall. Meanwhile, the company predicted that the surging popularity of portable computing devices, like tablets, smartphones, and laptops, will lead to strong demand for services that store personal information online.

The Carbonite announcement is the latest sign of a comeback in the market for initial public stock offerings, or IPOs. Menlow said that 61 companies have gone public in the US so far this year, compared with 46 in the same period of 2010, and just five in 2009. And Menlow predicted more in the months ahead, because companies scared away by the financial crisis of 2008 now think it’s safe to go public.

“The backlog for IPOs is at the highest level that has ever existed,’’ he said. “The number of companies that are waiting to go public are much greater than we had in the go-go years of the Internet.’’

Hiawatha Bray can be reached at bray@globe.com.