Chan Zuckerberg Initiative Partnership Will Drive Future Demand

Key Takeaways

• Strategic introduction of lower-priced products and sales reorganization are poised to drive volume growth and enhance market share in biopharma and academia.
  
• Expansion in biopharma and partnership initiatives like the Billion Cells Project present significant opportunities for long-term revenue and demand growth.
  
• Challenges include declining revenue, lower pricing impact, NIH funding uncertainties, significant drop in instrument sales, and potential sales force restructuring disruptions.

Catalysts

A life science technology company, develops and sells instruments, consumables, and software for analyzing biological systems in the Americas, Europe, the Middle East, Africa, China, and the Asia Pacific.

• The introduction of lower-priced products, such as the GEM-X Flex assay and on-chip multiplexing, is expected to drive volume growth over time by lowering price barriers, potentially leading to increased revenue.
  
• The reorganization of the sales force and establishment of specialized teams aim to improve customer focus and account coverage across all sizes in both biopharma and academia, likely impacting revenue and market share positively in the long term.
  
• Expansion into biopharma is a key focus, with plans to grow this segment from 15-20% of total revenue to 50% in the future, offering significant potential for revenue growth as these applications scale and mature.
  
• The partnership with the Chan Zuckerberg Initiative on the Billion Cells Project represents a significant opportunity to drive large-scale single-cell studies, potentially increasing demand and revenue growth.
  
• Strong emphasis on cost management and operational efficiency is intended to maintain a robust balance sheet, potentially improving net margins and financial stability.

10x Genomics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming 10x Genomics's revenue will grow by 5.8% annually over the next 3 years.
• Analysts are not forecasting that 10x Genomics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate 10x Genomics's profit margin will increase from -29.9% to the average US Life Sciences industry of 12.9% in 3 years.
• If 10x Genomics's profit margin were to converge on the industry average, you could expect earnings to reach $93.3 million (and earnings per share of $0.72) by about April 2028, up from $-182.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from -5.4x today. This future PE is lower than the current PE for the US Life Sciences industry at 34.8x.
• Analysts expect the number of shares outstanding to grow by 2.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

10x Genomics Future Earnings Per Share Growth

Risks

• Revenue was down 1% year-over-year in 2024, indicating potential challenges in maintaining growth, which could impact overall revenue and earnings.
  
• Lower pricing of new single-cell products may take time to offset with volume growth, which presents a risk to revenue and net margins in the near term.
  
• NIH funding uncertainty, including potential caps on indirect costs, could lead to reduced academic research budgets, impacting revenue from NIH-funded projects, which account for about 20%-25% of the company's revenue.
  
• Total instrument revenue decreased significantly by 25% in 2024, with a notable drop in spatial instrument sales, which may strain overall sales growth and gross profits.
  
• The restructuring of the sales force might result in short-term disruptions before the anticipated benefits materialize, potentially affecting revenue consistency and operational efficiency in the interim.

Valuation

• The analysts have a consensus price target of $15.423 for 10x Genomics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $7.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $723.6 million, earnings will come to $93.3 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 6.9%.
• Given the current share price of $8.03, the analyst price target of $15.42 is 47.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.