Cisco buys Meraki for $1.2B, makes Ruckus, Ubiquiti, Aruba look undervalued

Cisco is acquiring Meraki, a private company, for $1.2 billion. Meraki has sold Wi-Fi mesh networking equipment, although more recently it has positioned itself as a cloud-based Wi-Fi management service. Indeed, contrary to what has been said in other articles, it is clear that Cisco is buying Meraki not for its wireless mesh technology, but for its cloud computing tool. Meraki founders and staff will be joining Cisco’s Cloud Networking Group office in San Francisco, not the wireless group.

The $1.2 billion price that Cisco is paying in cash to Meraki is very high, considering the market capitalization of several publicly traded companies that have been in the same space as Meraki:

  • Aruba Networks: market cap 2.14 billion
  • Ruckus Wireless: market cap $1 billion
  • Ubiquiti: market cap $1 billion

More importantly, all three companies above are profitable and have much higher revenues, whereas Meraki says it had revenues of $20 million in its fiscal second quarter of 2012. Ruckus Wireless (RKUS), which went public last Friday, has deep pocket customers among cable operators, telecoms companies like KDDI in Japan, large enterprises, and universities. Ubiquiti (UBNT) is a huge favorite among wireless ISPs, reports vastly higher revenues than Meraki with just over 100 employees. Aruba has been selling into the enterprise for many years and has well developed direct sales and channel operations. With regard to wireless equipment, Meraki has not been a serious contender in the telco-cableco-enterprise markets. Why, only last month, Meraki was giving away equipment!

As for its cloud management software, Meraki is hardly alone in providing such a tool. Aerohive has Hive Manager, Ruckus has FlexMaster Centralized WiFi Management, Ubiquiti has UniFi, Aruba has Network Management, and so on. Meraki’s may have some advantages over the others, but it’s not leaps and bounds over the others.

Meraki founder Sanjit Biswas claims that the company has “achieved a $100M bookings run rate” with a goal of reaching $1 billion (who doesn’t have that goal?). The point is this is a company that has been around since 2006, has not been profitable despite having $80M in VC funding, has over 300 employees and has just been sold to Cisco for $1.2B.

Meraki claims it decided to sell to Cisco instead of doing an IPO. That means Meraki’s investors believed they could make more money selling it to Cisco than to the public, and that the public would not pay what Cisco has decided to pay for it.

That makes Aruba, Ruckus, and Ubiquiti look very undervalued indeed.