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Egnyte Achieves Profitability, But Growth is Elusive

Posted on Tuesday, Jun 20th 2017

According to a MarketsandMarkets report, the enterprise collaboration market is estimated to grow from $3.65 billion in 2015 to $8.26 billion by 2020 at 17.7% annually. Enterprise collaboration tools market includes players such as Egnyte that has become so much more than the document sharing company it started as.

Egnyte’s Offerings

Founded in 2008 by entrepreneurs Vineet Jain, Rajesh Ram, and Kris Lahiri, Mountain View-based Egnyte was set up when the co-founders replaced a physical file server with a multi-tenanted and hosted server. When they set up the server, they did not even realize that they had actually built something similar to a cloud-based server. They called the first prototype of their product an on-demand file server. Since then, Egnyte has never looked back.

Egnyte offers organizations the ability to share its documents on a hybrid model. It realizes that organizations may prefer the security and compliance offered by maintaining some of their documents on-premise. Its hybrid platform allows this flexibility by converting the organization’s file servers into a single storage platform with flexible deployment capabilities. It allows its customers to decide which files are to be stored on-premise and which of those can be moved to the cloud.

Over the past few years, Egnyte has added several other offerings beyond pure data storage. When I spoke with its co-founder Vineet Jain at a roundtable a few years ago, he mentioned how he believes that the cloud storage is going to become essentially free. Inspired by that idea, Egnyte is creating additional value add, upstream solutions to generate more revenues. Last year, Egnyte released a document protection product called Egnyte Protect. It is a smart content governance solution that tracks issues across multiple content repositories including Egnyte Connect, SharePoint, and Windows File Server; uncovers unusual user permissions in real-time; and identifies and secures the files with the highest risk to the organization. It allows IT to configure the access rules for a folder or document across storage services and then enforces these data protection rules across the hybrid platform it supports. Besides access, in the longer term, Egnyte Protect will also include selective encryption, a data residency module to set rules about where a file can reside, and a data retention module that will allow system administrators to apply a lifecycle management component to the documents defining if and when a document should be deleted.

More recently, Egnyte released a desktop app to simplify the use of Egnyte Connect for its corporate users. The new app allows laptop users to view and edit files from anywhere without having to worry about syncing or about the location of the file. The app separates content location from user experience to provide users with the fastest route to their content and allows IT to modernize the content infrastructure.

Egnyte’s Financials

Egnyte’s hybrid approach has appealed to its corporate users, but its stand on staying away from a freemium service, that Box and Dropbox offer, has also made its growth rate relatively slower. Egnyte has been revenue-focused for a while and the only free service it offers is a two-week trial period. Prices vary depending on the size of the organization, ranging from $8 – $15 per employee per month and an undisclosed pricing for bigger enterprise customers.

Egnyte has been privately held and does not disclose detailed financials. It has been talking for a while about generating $100 million in revenues annually. But that number appears to be eluding it. It had spoken of being on track to earn $50 million in revenues in 2014, but as of August 2016, revenues had still not reached $50 million. However, Egnyte has managed to achieve profitability – a rare feat in the industry. It recorded cash flow break-even in the second half of 2016, a minor net profit in the last quarter of 2016, and it appears to have repeated that performance in the first quarter of 2017. Compare that to Box, which had revenues of nearly $400 million for 2016 but recorded a net loss of $0.56 per share.

Egnyte has raised $62.5 million in funding from investors including Kleiner Perkins Caufield & Byers, Google Ventures, Polaris Partners, Northgate Capital, CenturyLink, Seagate Technology, and FLOODGATE. Its last round of funding was held in December 2013 when it raised $29.5 million at an undisclosed valuation from Seagate Technology, CenturyLink, Northgate Capital, Kleiner Perkins Caufield & Byers, Google Ventures, and Polaris Partners. It hasn’t had to raise funds since, but reports suggest that it may be preparing for another round as it gears up for an IPO.

Egnyte’s latest valuation may be unknown. But Box, with its $400 million annual revenues and net losses is trading at $2.5 billion valuation. Dropbox, which is even bigger, with annual revenues estimated at $750 million has raised $600 million so far. Its last funding was held in January 2014 at a valuation of $10 billion. Both Box and Dropbox have seen valuations fall over the past couple of years. Prior to listing, Box had raised $560 million, with its last round valuing it at $2.6 billion. More recent valuation for Dropbox is not known, but analysts expect that its valuation has dropped by 50% since 2014.

Egnyte needs to find some strategic levers of growth relatively soon, as it is now approaching its 10-year anniversary. Investors would be looking for an exit at this point. However, a 2017 IPO doesn’t seem likely.

Egnyte has had an interesting ride so far building a business that values margins as much as the product it offers. You can read my 2014 interview with him here, or listen to the 2015 roundtable here.

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