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Popular Biotech Growth Stock Is Bitten by a Strong Dollar

by WOOWinvest
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Popular Biotech Growth Stock Is Bitten by a Strong Dollar

Investors should brace for turmoil at 10x Genomics (TXG) – Received 10x Genomics Inc. report stock.

The lab hardware business in Pleasanton, Calif., reported unexpected operating results for the second quarter of 2022: revenue fell. The company’s original guidance called for 22% to 28% revenue growth in 2022.

Last check the stock was down 22% from Thursday’s close. The company plans to report full second-quarter results on Aug. 8.

What is the source of the miss? Well, much of the deterioration in otherwise strong operating conditions can be traced to one culprit: a strong dollar.

It’s also a key signal that biotech investors won’t be able to avoid the macro factors typically associated with global tech stocks.

A strong dollar undercuts this growth stock

10x Genomics sells single-cell analysis instruments and the supplies needed to operate these instruments to scientists. This laboratory hardware is used in all 100 top research institutions in the 2020 Nature rankings and all 20 top pharmaceutical companies in the 2022 global R&D spending rankings.

This business absolutely crushes its niche. Revenue in 2021 doubled to $490 million from $246 million in 2019. Full-year 2022 revenue guidance calls for $600 million to $630 million.

Management hasn’t officially updated its expectations, but investors can expect that previous guidance is no longer achievable.

A strong dollar is the culprit.

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In 2021, 53% of 10x Genomics’ revenue will come from the US, 22% from customers in the EMEA region, and 24% from customers in China and Asia Pacific. Relying on international customers for half of sales was a problem when the dollar was at multi-decade highs.

Preliminary operating results for the second quarter of 2022 substantially reset investor expectations:

Americas revenue up 8% YoY EMEA revenue down 11% YoY Asia Pacific revenue down 15% YoY

This resulted in a year-over-year decline of about 1% in total revenue. That’s unlikely to meet the company’s full-year revenue guidance.

Prepare for volatility (and among other biotech stocks)

10x Genomics is heading lower as the market digests disappointing preliminary earnings and updated guidance in the coming weeks.

The performance is certainly shocking, but given the strength of the dollar, it makes perfect sense. It could also hint at a weaker performance for other biotech stocks.

Twisted Bioscience (TWST) – Get the Twist Bioscience Corporation Report Similar fiscal 2021 revenue geographic distribution was reported for 10x Genomics. Investors may also be looking for a pullback from the DNA synthesis leader, given that the stock is currently trading at a relative premium.

Likewise, genetic testing company Invitae (NVTA) – Get Invitae Corporation Report The recent need to buy liquid biopsy tools to drive growth in 2022 and beyond, but it chose Europe as a launch market. A strong dollar could be a bad sign for businesses adding these products.

In short, 10x Genomics’ preliminary results both surprised investors and served as a warning for other biotech companies with international reach.

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