Nimble Storage Surges in Market Debut as Flash Rivals Plummet

Nimble Storage Inc. soared in its stock market debut yesterday, validating Chief Executive Officer Suresh Vasudevan’s decision to go public even as shares of flash-storage makers Violin Memory Inc. and Fusion-io Inc. plummet.

Nimble’s flash technology is used to bolster data-center storage, providing more speed and capacity while keeping prices down. Revenue more than doubled in the third quarter to $33.4 million, with the number of customers climbing to 2,100, up from 270 in early 2012.

Still, Nimble is unprofitable, and Vasudevan had to convince investors of the company’s long-term growth potential and prospects for generating earnings while newly-public rivals struggle. Vasudevan said he spent the past year building relationships with investors so they could fully understand the company’s gross margin, diverse customer base and unique technology.

“This was not a ‘trust us, we’re different’ kind of discussion,” Vasudevan said yesterday in an interview from the New York Stock Exchange, after the shares began trading. “It was very factual.”

Nimble jumped 62 percent to $33.93 at the close in New York, valuing the San Jose, California-based company at $2.38 billion. Violin Memory has lost 70 percent of its value since its initial public offering in September, and Fusion-io is down by more than half since its mid-2011 IPO.

Unlike Violin Memory and Fusion-io, which count on a concentrated group of large customers to drive their business, Nimble doesn’t rely on any client for more than one percent of its revenue, said Vasudevan. Customers include municipalities, banks, law firms and schools, as well as data-center operators.

Large Competitors

Nimble is competing with big companies like EMC Corp., Hewlett-Packard Co. and NetApp Inc., which provide suites of storage hardware and software. That forces Nimble to spend almost as much on operating expenses as it generates in revenue.

Vasudevan said he’s bolstering investment in research and sales, because enterprises are demanding more efficient ways to manage storage as they spend tens of billions of dollars a year on systems.

Nimble isn’t “clamping down on investment to get to profitability,” Vasudevan said. Even with high costs, “revenue will continue to increase faster than operating expenses,” he said.

After its opening day close, Nimble’s biggest venture backers, Accel Partners and Sequoia Capital, each own stakes valued at $439 million.

Changing Course

Going public in an uncertain environment may not be the riskiest thing Nimble has done. In July 2009, 18 months after its creation, Nimble’s founders shifted the company’s focus from creating a flash-based appliance called a cacher that worked with storage systems to building entire systems themselves.

In a blog post yesterday, Jim Goetz, a partner at Sequoia, called the move a “bet-the-company pivot” that paid off.

“The venture graveyard is full of startups that have taken on the primary-storage market,” he wrote. “If you had stuck with the cacher, it’s likely some conglomerate would have acquired Nimble long ago.”

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