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Fusion-io Stock Gets Crushed

Investors spooked by a fall in gross margins


In early June, data storage company Fusion-io (NYSE:FIO) pulled off a highly successful IPO. The company priced its deal at $19, which was above its $16-$18 range. On its first day of trading, the shares increased 18.4%.

But since then, things have been bumpy, the latest hit coming Wednesday on the news of its latest earnings report. FIO shares plunged by 16% on the day to $25.50.

Fusion-io develops whiz-bang storage technology for data centers, and it counts Facebook among its customers. And its chief scientist? None other than Steve Wozniak, the co-founder of Apple (NASDAQ:AAPL).

There were some positives in the quarterly numbers, with revenues spiking by a sizzling 169% to $84.1 million. But gross margins sank from 59% to 51%. With such a ramp in revenues, shouldn’t margins actually increase?

Not always. Fusion likely is getting aggressive on investments, such as on marketing and R&D, to deal with its heavy competition. Keep in mind that EMC Corp. (NYSE:EMC) is preparing to launch a rival offering. And then there are other comeptitors like Hitachi Data Systems, Micron (NASDAQ:MU) and LSI (NYSE:LSI), which have tremendous scale and also could be a big problem for Fusion-io.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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