Carbonite Prices IPO At $106 Million, Outlines Business Risks

Online storage backup provider Carbonite has filed for an IPO that could net the company as much as $106 million sometime this year.

Carbonite's SEC filing for the IPO on Thursday provided a rare look at the financial data, channel relationships, and risks involved in the cloud storage industry, one that has a large and growing number of both well-known and startup providers.

Boston-based Carbonite said it plans to sell 5,366,473 shares of common stock at a price of $16 to $17 per share, after which the company plans to trade with the stock symbol "CARB." Carbonite first unveiled its IPO plans in May.

The company, in its filing, wrote that it was founded in 2005, and that it has yet to make a profit. Losses have risen from $17.4 million in 2008 to $25.8 million in 2010, but losses for the first six months of 2011 declined 29 percent from the same period of 2010 to $10.1 million.

Carbonite currently has 1.1 million customers, including consumers and businesses with paid subscriptions, up from the 281,000 it had in 2008.

Cloud storage can be a risky business, Carbonite wrote in its SEC filing.

The company wrote that a disruption in service could be very harmful for its business, indicating that there have been occasional interruptions, but nothing serious so far. However, the company does not keep separate redundant copies of customer files, meaning that a Carbonite data center failure at the same time as a customer failure could mean a loss in data.

"Our systems provide redundancy at the disk level, but do not keep separate, redundant copies of backed up customer files. Instead, we rely on the fact that our customers, in effect, back up our system by maintaining the primary instance of their files. We do not intend to create redundant backup sites for our solutions. As such, a total failure of our systems, or the failure of any of our systems, could result in the loss of or a temporary inability to back up our customers’ data and result in our customers being unable to access their stored files," the company wrote.

Carbonite hosts is services from two Boston facilities which it leases. The company wrote that the owners of those data centers could change the terms or cancel the leases at any time.

Financially, the company has an accumulated deficit of $87.9 million, and has yet to achieve a positive cash flow its operations. In the meantime, it is continuing to invest in its operations, including a significant investment in relocating its customer service operations from India to Maine in the U.S.

The company acknowledged that it is in a very competitive and fast-changing market. Direct competitors include Prosoftnet, CrashPlan, VMware's Mozy, Symantec’s Norton Online Backup, McAfee Online Backup, SOS Online Backup, and others.

It also competes with current and potential services provided by even larger companies including Apple, Google, Microsoft, Amazon, and others. "With the introduction of new technologies and market entrants, we expect competition to intensify in the future," Carbonite wrote.

The ability to keep up with customers' evolving mobile device use could also be a risk, Carbonite wrote.

Next: Risks From Mobile Devices, SMBs, And China

While the company has mobile applications for the iPad and for iPhone, BlackBerry, and Android smart phones to access files it stores for customers, it has not yet developed a service to back up data stored on those devices. "If one or more of our competitors were to launch such a service, or if we were to be unsuccessful in an attempt to launch such a service, our competitive position could be materially harmed," the company wrote.

Carbonite's business could also be hurt by an inability to capitalize on the SMB market. In its SEC filing, Carbonite wrote that it recently introduced a backup solution for SMBs, but that it is more difficult and expensive to attract and retain SMB customers than consumers because of enhanced security or encryption or authentication requirements, frequent sales or failures of businesses, and the need for expensive, targeted sales campaigns.

Plans to expand internationally could also be a risk, as the laws of each country vary in terms of local practices and regulatory requirements. Carbonite, in its SEC filing, specifically pointed to China with its unique business environment in terms of regulations.

"The laws and regulations governing our business or the enforcement and performance of our proposed contractual arrangements with our affiliated Chinese entity and the designated individual stockholder are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty. New laws and regulations that affect our business may also be applied retroactively," Carbonite wrote.

Carbonite was unable to comment on its pending IPO.