Wall Street skeptical of Presidio value

Presidio held its long-anticipated initial public offering (IPO) last week, during which it sold 16.7 million shares at US$14.00 per share (at the low end of its price range of US$14.00-US$16.00), thereby raising US$233 million - less than expected when the initial IPO talks began. In the first week of Presidio being public, Wall Street investors did not flock to own Presidio shares. Consequently, the share price hovered close to the IPO price. The early muted performance may be derived from fundamentals, notably, its high debt obligations. However, plenty of high-profile debt-ridden and unprofitable technology companies have performed well in the stock markets.

Presidio’s IPO performance highlights investor skepticism but also suggests it is suffering from a perceived identity issue. Although it is one of the largest resellers in the US, with approximately US$2.7 billion in annual revenue, it does not have the low-cost/high-scale operational model of a volume-led reseller, such as CDW, nor does it aspire to - as it often boasts about - its ratio of engineers to sales staff. But nor is Presidio a systems integrator that can demonstrate renowned vertical expertise, with a client base consisting of large multi-national organizations with big budgets, a predictable set of multi-year contract engagements and a coveted set of consulting capabilities. Presidio is a self-described solution provider targeting mid-market customers with a focus on digital infrastructure, and Wall Street has yet to believe there is significant future potential in that arena, particularly with expectations among investors that many of these customers’ workloads will move to public cloud.

Presidio needs to overcome perception plights

This perception plight highlights the challenge that many channel partners face, particularly those with deep technical expertise who have yet to garner attention from the many business leaders who have highlighted that digital transformation is their core driver. A typical channel partner serves an IT department and often struggles to elevate itself to a position of strategic partner with customers, where engagement is with the top echelons of the company.

Presidio is embarking on this challenge, led by its growing professional services capabilities (it acquired Sequoia, a cloud consulting company in 2015) and its deep technical expertise with core vendor partners such as Cisco, Dell EMC (including VCE), NetApp and VMware. Particularly with Cisco, its top vendor from a revenue standpoint by a long margin, Presidio is often involved in trialing new technologies and testing advanced solutions in the market. If Cisco can successfully transform itself into a core component of a customer’s digital transformation journey, Presidio is well positioned to capitalize.

Presidio has highlighted a few key points that demonstrate its strategy:

•       In addition to digital infrastructure (a broad term that really gives emphasis to its core infrastructure business), it will focus on cloud and security.
•       It will concentrate on the mid-market, and predominantly companies that are primarily US-based, given its lack of international presence.
•       It will continue to grow through acquisitions, expanding geographically across the US (it has made acquisitions in 4 of the last 6 years).

Growing revenue and margins in the mid-market can be a challenging feat as price sensitivity is prominent, and scaling to reach multiple customers is a natural inhibitor. Moreover, its core infrastructure business will be challenged if public cloud infrastructure services spending continues its current trajectory.

The key to Presidio’s growth is its ability to demonstrate the value of its own professional, consulting and managed services businesses, relying less on vendor margin. Its gross margins currently lead those of many of its reseller peers, which run lean cost structures. Presidio demonstrates how resellers can capitalize on higher value services. It needs to focus on how it markets itself in order to elevate its brand and value proposition to target the attention of C-level business leaders seeking strategic partners in digital transformation. Furthermore, in a market where core IT skills are becoming scarce, Presidio needs to realize its skills are an increasingly valuable commodity and ensure it prices its services accordingly.