Why Solazyme Inc's Shares Fell Flat Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of oils product maker Solazyme Inc (NASDAQ: SZYM  ) fell as much as 11.5% today after announcing a new product, as well as a dilutive stock offering.

So what: The new product is the first encapsulated biodegradable lubricant for oil and gas drilling called Encapso. It has already been tested in the field and, given the growth in shale drilling, presents a strong growth opportunity for the company. 

But that news was overshadowed by the announcement that Solazyme intends to sell $100 million in convertible notes and 5 million shares of stock, which will further dilute shareholders. 

Now what: The challenge with an emerging company like Solazyme is that it needs tremendous amounts of capital to create the infrastructure needed for growth. That can lead to dilution from time to time as new capital expenditures are made, which is what management intends to use this money for. It's just one of the risks of investing in a stock like this, although investors should keep in mind the upside potential for drilling fluids and other potentially high-margin products, which is the upside for the company.

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  • Report this Comment On March 26, 2014, at 8:23 PM, foinatorol wrote:

    in a growth company like this...extra cash needed ...I view dilution as a growth lever. Solazyme has brought financing from a variety of creative sources; including partnering, research, and common share issue.

    I'd like to see some preferred shares put out there, too....OPM funding when it starts to make sense, if other sources fall short for the next round after the first large-scale projects ones prove themselves at nameplate.

    I'm thinking long and yes, I own a meaningful (to me) piece of SZYM).

  • Report this Comment On March 27, 2014, at 9:33 AM, wesl8n wrote:

    I understand the process for financing, but $11.00 a share? That's 30% lower than two weeks ago; 18% less than last Friday. Dilution is one thing, a haircut is another.

  • Report this Comment On March 27, 2014, at 11:59 AM, TMFBlacknGold wrote:

    @wesl8n

    Perhaps the $11 per share figure was necessary to secure the 5% rate (the notes in the previous offering carry 6%). Not an expert on how debt financings work, but that is one plausible reason.

    Maxxwell

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