Earlier this week, Appleâ€™s (Nasdaq: AAPL) co-founder, Steve Wozniak, told Bloomberg Television he would buy Facebookâ€™s IPO â€“ which is scheduled to start trading [today] â€“ regardless of its valuation.
â€śI would invest in Facebook,â€ť said Wozniak. â€śI donâ€™t care what the opening price is.â€ť
Really, Steve? I can guarantee you that a â€śbuy at any priceâ€ť strategy isnâ€™t a successful one. No backtesting required.
Theyâ€™re buying into all the hype, just to make sure they donâ€™t miss out.
Even if the company jacked up its pricing range on Tuesday to $34 to $38 a share from the previous range of $28 to $35.
To borrow Mr. Tâ€™s catchphrase, â€śI pity the fool.â€ť But Iâ€™m not going to waste any more breath on warnings about Facebookâ€™s IPO.
Instead, Iâ€™m going to offer up an alternative â€“ a way to benefit from the Facebook IPO hype without all the risk.
The Smartest â€śBecause of Facebookâ€ť Investment
In previous columns, Iâ€™ve railed against social gaming company, Zynga (Nasdaq: ZNGA), because it relies almost entirely on Facebook to generate revenue. (In the last quarter, Facebook accounted for 92% of Zyngaâ€™s sales.)
But what if we could find a company that generated a modest amount of revenue from Facebook, and therefore was levered to the social networking giantâ€™s growth? Well, then weâ€™d have the perfect â€śbecause of Facebookâ€ť investment.
And thatâ€™s where Fusion-io (NYSE: FIO) comes inâ€¦
Founded in 2005, Fusion-io is a data decentralization pioneer. Its software and hardware solutions allow customers to efficiently get data to where it needs to be processed and analyzed.
Iâ€™ll spare you all of the technical mumbo jumbo. All you need to know is that the companyâ€™s products bring just-in-time manufacturing â€“ where the raw materials are located right next to the factory to ensure availability when demand hits â€“ to the data center. Only in this case, instead of putting raw materials close to the factory to be processed, weâ€™re talking about putting critical data closer to servers to be processed.
The end result? Dramatic increases in performance and efficiency.
For instance, Fusion-ioâ€™s products helped one internet company process almost 10 times more queries over a specific period of time. They helped a digital media sharing company improve customer access speeds by roughly 66%. And they helped an IT security service company reduce its data center energy consumption by more than 40%.
The last example highlights another key benefit of Fusion-ioâ€™s products. As a consequence of processing data faster and more efficiently, Fusion-ioâ€™s products also help cut down on the number of servers required and, in turn, the amount of energy required to run a data center.
Faster performance and lower operating expenses? Talk about a win-win product. Itâ€™s no wonder the company already boasts a blue-chip client list, including Apple, Dell (Nasdaq: DELL), IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ) and â€“ you guessed it â€“ Facebook.
In fiscal 2010, Facebook accounted for 10% of Fusion-ioâ€™s sales. By fiscal 2011 that percentage jumped to 36%. So it stands to reason that the more Facebook grows, the more data itâ€™s going to create and, in turn, the more itâ€™s going to rely on products from Fusion-io.
In other words, Fusion-io represents an indirect way to profit from Facebookâ€™s IPO. Rest assured, though, the investment case for Fusion-io extends beyond Facebook.
A Timely Acquisition Candidate, Too
As Iâ€™ve told you before, IDC predicts that the amount of data businesses handle is going to increase 44-fold by 2020. Not to mention, consumers are increasingly demanding real-time access to data. So unlike Facebook, Fusion-io delivers a worthwhile â€“ and increasingly necessary â€“ service.
That explains why so many blue-chip companies are already customers. But thereâ€™s no reason that any one of them canâ€™t become an owner, too.
You see, despite solid growth, Fusion-ioâ€™s stock is down 45% from its November 2011 high, making it a more affordable takeover target. And thereâ€™s definitely an urge to merge in the sector.
EMC Corp. (NYSE: EMC) recently paid $430 million to acquire Israeli startup, XtremIO, which is a flash memory storage company similar to Fusion-io. And rumor has it Dell recently offered to buy Fusion-io for $33 per share, but was denied.
If the rumors about a spurned takeover offer are true, management must believe Fusion-ioâ€™s growth prospects warrant a higher multiple. Iâ€™d agree. And thereâ€™s no denying that Fusion-ioâ€™s major customers could easily afford to pay more to buy the $1.9 billion market-cap company.
Dell, IBM and Hewlett-Packard, which all represent strategic fits, are sitting on cash balances of $14.8 billion, $12.3 billion and $8.1 billion, respectively.
Bottom line: We can live without Facebook. But companies, including Facebook, increasingly cannot live without data decentralization services offered by Fusion-io.
So if youâ€™re dead set on investing in the most overhyped IPO in history, consider doing so in a roundabout manner. Buy Fusion-io (NYSE: FIO) instead. Itâ€™s certain to benefit because of Facebook, but also from its own strong growth and takeover appeal, too.
Ahead of the tape,
Source: Wall Street Daily