Illumina Q2 - Slower Growth

Gene sequencing giant Illumina reported its not so good second-quarter numbers. As we already new from a recent update, revenues fell short of management expectations as the company missed timelines for certain population genomic initiatives due to logistical issues. Leading to lower-than-expected direct-to-consumer sales.

The San Diego, California based company said revenues came in at $838 million, up a pedestrian 0.96% year-on-year. This number fell short of managements forecast of 7%. While Product revenues increased 4.6% year-on-year to $704 million, Service and Other revenues declined 14.2% year-on-year to $134 million. The latter is a little concerning as it led to operating margin contraction of 2.78% year-on-year.

This revenue miss naturally led to management lowering future revenue guidance from 13%-14% for the year to only 6%. The new CEO Francis deSouza said that he is confident in the potential growth in the oncology testing market. He expects oncology testing to be the key driver of its systems and consumable revenues in the 2019 financial year.

Customers have started their transition from HiSeq to the NovaSeq and the company saw record placements for the NextSeq 550Dx Systems (pictured below) during the quarter. The company makes money from selling these sequencing machines, but the repeat business comes from selling consumables that are used daily by these machines.



The $1.2 billion Pacific Bioscience deal is being held up by the regulators in the UK as they believe that based on the current information the merger results in a substantial lessening of competition within the UK market. We should have more information on the deal before the 11th of December.

The company is not cheap at a forward PE of 41, even for a market leader with over 70% market share. Our investment thesis is that once the logistical problems are sorted and gene sequencing becomes the norm, this business stands to benefit the most as they've heavily invested in world class patented technology. This is a great addition to your portfolio if you're looking for a moonshot idea.