Why 10x Genomics’ Soaring Q4 Revenue Wasn’t Enough to Impress Investors

If you want evidence that investors are excited about genetic testing stocks, just take a look at 10x Genomics (NASDAQ:TXG). Its shares skyrocketed 86% in 2020 and are up over 30% so far this year. 

10x Genomics announced its fourth-quarter and full-year 2020 results after the market close on Wednesday. The healthcare stock fell around 2.5% in after-hours trading. Here are the highlights from the company’s Q4 update.

Scientist looking at DNA images on a computer screen

Image source: Getty Images.

By the numbers

10x Genomics reported revenue in the fourth quarter of $112.2 million, a 49% year-over-year jump. This result easily beat the average analyst estimate of $100.4 million.

However, the company’s bottom line didn’t look so great. 10x posted a Q4 net loss of $415.6 million, or $3.87 per share, based on generally accepted accounting principles (GAAP). This compared to a net loss of $7.1 million, or $0.07 per share, in the prior-year period. 10x’s result didn’t come close to hitting the Wall Street consensus target of a net loss of $0.23 per share.

This deteriorating loss wasn’t accompanied by a declining gross margin, though. 10x delivered a gross margin of 83% in the fourth quarter, up from 78% in the prior-year period.

The company ended the fourth quarter with cash and cash equivalents of $663.6 million. 10x Genomics’ cash stockpile stood at $424.2 million as of Dec. 31, 2019.

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Behind the numbers

10x Genomics’ impressive revenue growth stemmed mainly from increased sales of consumables used with its single-cell genomic analysis instruments. That growth was itself driven by an expanding install base. By the end of 2020, 10x had sold a total of 2,412 Chromium instruments since launching the product in 2016.

The company’s gross margin improvement resulted primarily from lower royalty payments. 10x has worked hard to transition its products from an older gel bead-in emulsion (GEM) technology to a next-generation GEM technology. Litigation with Bio-Rad Laboratories spurred this effort.

10x’s increased spending worsened its bottom line. Operating expenses in the fourth quarter skyrocketed 653% year over year to $502.9 million. Some of this increase was due to higher staffing costs (especially stock-based compensation) and higher litigation expenses. However, the biggest factor behind the company’s operating expense growth was its acquisition of ReadCoor, which resulted in $406.9 million of additional research and development expense.

Looking ahead

10x Genomics expects full-year 2021 revenue of between $480 million and $500 million. The midpoint of this range represents year-over-year growth of 64%.

The company should also have strong growth prospects over the longer term. 10x estimates that the addressable market for its instruments is around $15 billion per year. Its acquisitions of ReadCoor and Cartana could open up another $10 billion annual opportunity with in situ analysis (the sequencing of molecules in their native tissue). Even better, the overall genetic testing market continues to expand. 

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Invitae’s mixed Q4 results will almost certainly be quickly forgotten as the company makes progress in capturing more of its big addressable market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/02/18/why-10x-genomics-soaring-q4-revenue-wasnt-enough-t/

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