My take on Vilion Memory was as follows: “[W]hile the company is in a fast-growing market and has strong technology, the deal might not be a slam dunk.” I noted several issues with the VMEM stock offering, concluding that “Violin’s filing could be a sign that the quality of offerings is starting to decline.”
It turns out that I was too kind. Just look at today’s trading: VMEM stock is down a grueling 46% to $3.25 because of an awful earnings report. Keep in mind that Violin Memory stock came public at $9 a share.
Violin Memory Earnings
True, Violin Memory is a top developer of flash memory, which allows for reliable storage with high-speed applications, servers and networks. It’s the kind of thing that’s important for markets like social networking, Big Data, the cloud and mobile.
But the business has turned out to be a disaster. In the latest quarter, Violin Memory posted a loss of 85 cents per share of VMEM stock on revenues of $28.3 million. However, the Street was looking for a net loss of just 44 cents a share and revenues $28.3 million.
The outlook was also a mess. VMEM revenues for Q4 are expected to range from $30 million to $32 million. But the analyst consensus was for $44 million.
In light of all this, it is not a shocker that Violin Memory stock is getting crushed.
Bigger Problems for VMEM
Plus, there are bigger problems for Violin Memory. To start, there is heavy customer concentration. Consider that five customers account for 37% of total VMEM revenue … so losing one could certainly disrupt things. In fact, this happened last year when Hewlett-Packard (HPQ) bolted.
Next, VMEM faces tremendous competition. Some of the fierce rivals include Dell, EMC (EMC), IBM (IBM), Oracle (ORCL), NetApp (NTAP) and yes, HPQ. There is also a spate of venture-backed startups gunning for the market opportunity.
So while VMEM stock is definitely much affordable now, it could still be dead money. Whenever there are massive losses from an IPO, investors usually stay away for awhile.
Besides, it looks like competition will remain a big problem for Violin Memory.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.