Fusion-io’s response took a page from just-in-time manufacturing. The company found a way to decentralize the data in highest demand onto the servers themselves. That leads to faster processing times, less cost and lower energy demands. Fusion-io’s prospectus mentions a case study involving an “internet web property” (could that be Facebook?) that saw queries processed 9 times faster with Fusion-io’s technology and data center overhead reduced by 75%.
So popular are Fusion-io’s products that revenue rose fivefold to $125 million in the nine months through March 31, from $25 million in the same period a year earlier.
But this is not a company without its share of risks. Orders like Facebook and Apple won’t last more than several quarters. There’s no guarantee other orders will arrive to replace them, or that bigger companies won’t start offering decentralized data storage.
Fusion-io also doesn’t have much of a history of profit. It posted $7 million in net income in the last quarter, and its operating margin in the quarter was 11%, compared with a negative margin of 50% a year earlier. But it was also the first profitable quarter the company showed in the prospectus’ numbers. Fusion-io has an accumulated deficit of $70 million. And it still has negative cash flows of $1.5 million in its most recent quarter.
It’s easy to see why investors are taking to Fusion-io. It’s trading at 15 times revenue, but revenue is growing quickly because of an innovative and efficient technology in an important area of cloud computing. The money raised in the IPO won’t go to insiders’ pockets but to investing in things like R&D, which Fusion-io will need to maintain its edge.
Fusion-io is the kind of overlooked dark horse investors love to bet on. While it’s currently faring better than Pandora and Renren, it has its own share of risks. And if the stock keeps rising, it could end up generating the kind of hype that is not good for recently listed stocks.