Fusion-io, Inc. Flies on Strong Earnings, but the Bounce May Be Short-Lived

SSD maker Fusion-io (FIO) beat low expectations last night but has yet to show signs of consistent growth. Does it really deserve its pop today?

Jan 23, 2014 at 1:30PM

Investors in solid-state memory maker Fusion-io (NYSE:FIO) are enjoying a rare good day today. The market's digested its fiscal second-quarter earnings and has apparently found them delicious -- shares are up 14% as of this writing. But does that mean that Fusion-io, which has now clawed its way back to a 50% loss on the past year, is starting to become a good investment again? That's not quite so clear.

Fusion-io beat expectations on both top and bottom lines: Wall Street's $0.10-loss-per-share consensus was trounced by a comparatively "strong" $0.06 loss per share, thanks to stronger-than-expected revenue of $94.5 million (against an $89.1 million consensus). However, the company expects revenue to be flat to "slightly up" in the third quarter, and anticipates a rather ugly non-GAAP operating loss of 15% to 20% of revenues. Based on available information (we'll give Fusion-io the benefit of the doubt and tack on $3 million in additional revenue for the upcoming quarter), that works out to an 11% year-over-year improvement in revenue, but net losses may wind up coming in worse than the year-ago quarter's GAAP loss of $20 million after non-operating expenses are taken into account.

Here's what Fusion-io's recent results look like on both a quarterly and a trailing-12-month basis. As you can see, the company's "transformation" -- as CEO Shane Robinson called it in the after-hours earnings call yesterday -- has not produced the desired results just yet:

Fioq
Source: Morningstar and Fusion-io earnings release.

Fioq
Source: Morningstar and Fusion-io earnings release.

On a narrower timeline, Fusion-io's recent bottom-line uptick is heartening, but the trailing-12-month chart continues to show ugly progress in the wrong direction. The company's top and bottom lines have both been sliding for the past four quarters, and a recent move by free cash flow into negative trailing-12-month territory is worrisome as well.

While the company's earnings release and subsequent conference call were light on details, CFO Ted Hull did mention that Fusion-io now boasts 12 end-user customers that have placed more than $1 million each in orders. Robinson also noted that the company is "successfully partnering with ISVs, including SAP, Microsoft (NASDAQ:MSFT), Oracle, and VMware (NYSE:VMW) on industry-leading application acceleration solutions and we continue to be designed into next-generation data centers around the world." He also noted a new partnership with Lenovo, which will include ioScale memory products in Lenovo's ThinkServers sold in China.

Diversification is nice, but when you consider that the quarterly capital expenditures of the smallest of the companies mentioned (VMWare) was roughly equal to Fusion-io's quarterly revenue, it seems like there's a lot further for Fusion-io to go in terms of large-scale partnerships. All told, those four companies spent a combined $1.6 billion on capital expenditures in their most recent quarters -- Microsoft alone pledged some $700 million to build a Des Moines data center last summer just to support Xbox Live. Memory costs are only a small part of the data center, but Fusion-io hasn't proven that it's earned an important place in the cloud just yet.

This isn't the first time Fusion-io shares have surged -- but in each previous occasion, the pop has been relatively short-lived. This could turn out like those previous pops if Fusion-io doesn't have a game changer on the way soon.

Editor's Note: The original version misstated Fusion-io's interest payments. This version has been corrected

Still searching for the next big tech investment?
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before with the likes of Amazon and Netflix. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.

The Motley Fool recommends and owns shares of VMware. It also owns shares of Microsoft and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers