Investors should brace for turbulence in 10x Genomics (TXG) stock.
The Pleasanton, Calif., lab-hardware business reported a surprise estimate for second-quarter 2022 operating results: a revenue decline. The company's original guidance called for 22% to 28% revenue growth in 2022.
At last check the stock was off 22% from Thursday's close. The company plans to report full second-quarter results on Aug. 8.
What's the source of the miss? Well, most of the deterioration in otherwise strong operations can be traced to one culprit: the strong U.S. dollar.
It's also a key sign that biotech investors won't be spared from the macro factors typically associated with global tech stocks.
A Strong Dollar Sapped This Growth Stock
10x Genomics sells single-cell-analysis instruments and the supplies needed to operate them to scientists. The lab hardware is used in all 100 of the top research institutions ranked by Nature in 2020 and all 20 of the top pharmaceutical companies globally ranked by R&D spend in 2022.
The business has absolutely crushed its niche. Revenue doubled to $490 million in 2021 from $246 million in 2019. Full-year 2022 revenue guidance called for $600 million to $630 million.
Management hasn't officially updated expectations, but investors can expect the prior guidance is no longer achievable.
A strong U.S. dollar is to blame.
In 2021, 10x Genomics generated 53% of its revenue from the U.S., 22% from customers in the Europe-Mideast-Africa region, and 24% from customers in China and Asia Pacific. Relying on international customers for half of sales is a problem when the greenback is at a multidecade high.
Preliminary Q2 2022 operating results sharply reset investor expectations:
- Revenue from the Americas increased 8% year over year
- Revenue from EMEA decreased 11% year over year
- Revenue from APAC decreased 15% year over year
That resulted in total revenue declining an estimated 1% year over year. That's unlikely to enable the company's full-year revenue guidance.
Brace for Turbulence (in Other Biotech Stocks, Too)
10x Genomics is correcting lower as the market digests the disappointing preliminary revenue and updated guidance in the coming weeks.
The performance is certainly a shock, but it makes complete sense given the strong U.S. dollar. It also likely hints at weaker performances for other biotech stocks.
Twist Bioscience (TWST) reported a similar geographic distribution of revenue in fiscal 2021 as 10x Genomics had. Considering the stock trades at a relative premium right now, investors might look for a correction lower for the DNA synthesis leader, too.
Similarly, genetic-testing company Invitae (NVTA) needs recently acquired liquid biopsy tools to power growth in 2022 and beyond, but it chose Europe as the launch market. A strong greenback could bode poorly for the business ramping up those products.
Simply put, the preliminary results from 10x Genomics are both surprising to investors and a warning for what might be ahead for other biotechs with an international presence.
