Panic Selling In Fusion-io A Strong Buying Opportunity?

May. 9.13 | About: Fusion-io, Inc. (FIO)

Fusion IO (NYSE:FIO) got absolutely obliterated yesterday (May 8th), down by as much as 27% to touch $13.13, after the company announced a major change in management. On Wall Street, it is common place for unexpected major management shifts to be an event that causes selling immediately, with questions asked later. On Wednesday, the stock closed down 18.9% on volume 15 times the average of 3 million shares that normally trade in a given day.

The big change is that both CEO and co-founder David Flynn has stepped down concurrently his fellow co-founder Rick White in order to pursue what is being called "entrepreneurial investing activities." It is crucial to note that they are not exiting the company entirely however, as both Flynn and White will remain on the board of directors as advisors for the next 12 months. Shane Robison has been named CEO. Robison was previously an executive for Hewlett Packard (NYSE:HPQ) before joining FIO. Mr. Robison came on record and said the transition was not caused by any problems within the company or disagreements on strategy. Further, from an investing standpoint, I took note that the company reaffirmed its guidance, with fiscal 2013 revenue still expected to be about $435 million. This is why I pulled the trigger at $13.20 and expect the stock to come back to the pre-announcement levels of $18 in the next few sessions.

For those unaware, FIO engages in the development, marketing, and sale of storage memory platforms for enterprise data decentralization. FIO operates primarily in the United States, but does some business internationally. FIO's integrated hardware and software platform enables the decentralization of data from legacy architectures and specialized hardware. FIO makes popular storage memory platforms including ioDrive, ioFX, and ioCache products; directCache data-tiering software; ioTurbine virtualization software; ioSphere platform management software; and ION data accelerator software. Its products are used in various markets, such as financial services, Internet, technology, education, retail, manufacturing, energy, life sciences, and government. Some of its highest paying customers are Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB). These two companies rely heavily on FIO's services to decentralize data. Fundamentally, the company seems strong, even though the stock is down significantly from touching $32 in the fall of 2012.

Before pulling the trigger, I did check recent performance. While the company struggled a bit in 2012, the most recent quarter was better than expected and the outlook was strong. In the most recent quarter, FIO reported revenue of $87.7 million. Net loss for the fiscal third quarter of 2013 was $20.0 million, or a net loss per diluted share of $0.21. However, non-GAAP net loss for the fiscal third quarter of 2013 was $3.2 million, or a net loss per diluted share of $0.03. Gross margin for the fiscal third quarter 2013 was 55.1. Non-GAAP gross margin for the fiscal third quarter 2013 was 59.9%. FIO also reported cash flows of $6.9 million. Cash and cash equivalents on hand for FIO totaled $354.6 million in the quarter.

One other positive piece of news that is strong for the company going forward was its recent acquisition of NexGen Storage. This move will help to expand FIO into smaller to medium enterprise markets. FIO paid approximately $114 million in cash and approximately $5 million in stock for all of the outstanding stock, warrants and vested equity awards of NexGen. Going forward to the current quarter, FIO expects revenues of $110 million and a loss of 4 cents per share. However, this was better than the street expected, causing shares to be bought up after the earnings announcement.

In conclusion, I got long the stock today given its business relationship with AAPL, FB and HPQ, as well as its stronger outlook for the current quarter. Further, the stock was crushed in a classic overreaction to a surprise management shift that shot the shares down roughly 20%. However, the company reaffirmed its guidance. Thus, I believe shares will rebound in the coming sessions and think getting long at these 52 week lows is a good bet going forward.

Disclosure: I am long FIO, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I initiated position at $13.20