Incoming Apple Orders May Not Justify Fusion-io's $1.8 Billion Market Cap

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

FIO had one profitable quarter in its entire history, when it earned $7 million in the March 2011 quarter. How easy is it for FIO to grow into a market capitalization approaching $2 billion? FIO priced at $19 and now is selling around $23, up 64% from the price range mid-point of a few days ago. If we annualize the six months ended March 31, 2011 the P/E multiple at $23 per share is 179. (See our earlier article IPO Pick of the Week: Fusion-io)

Facebook orders bulged the March quarter, the first profitable quarter in FIO's history. So if we annualize just the March quarter the P/E is 64, but revenue from Facebook is expected to decline in the June quarter.

FIO's $23 stock price suggests investors think Apple (NASDAQ:AAPL)'s percent of FIO's revenue will rocket up from 20% in the March quarter. Yes, that might happen, perhaps at some point accompanied by orders from other large cloud creators.

But there's no "encore" after these big short-term equipment upgrades are completed.

Also, FIO spent $15 million in sales and marketing in the March quarter. Isn't that a lot of money to spend to land just a few big accounts?

And yes, it's true that FIO has sold 12,000 server cards in the last two years, at $3,000 per card. And it's true that Dell (NASDAQ:DELL), IBM (NYSE:IBM) and HP (NYSE:HPQ) ship nine million servers per year, but that's a different business.

Quarterly results

Dec 2009

Mrch 2010

June 2010

Sept, 2010

Dec, 2010

March, 2011

Revenues ($mm)

$7

$13

$11

$27

$31

$67

Gross profit %

62%

59%

47%

43%

59%

53%

Sales & Marketing % of rev

68%

46%

80%

33%

36%

22%

Operating income %

-89%

-50%

-107%

-21%

-6%

11%

Net income (loss)

-$6

-$7

-$12

-$6

-$3

$7

Net income (loss) %

-89%

-50%

-109%

-21%

-8%

10%

COMPARE

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Fusion-io (NYSE:FIO) @$23

$1,794

9.1

179

10.0

10.0

10%

Annualizing last 2 quarters*

*because March qtr not ex[ected to recur

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

in IPO

Annualizing the March qtr

$1,794

6.7

64

10.0

10.0

16%

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.